U.S. Stocks Fall From Records as Health-Care, Technology Slump

Updated on

Stock Bubble Set to Burst?

U.S. stocks retreated after the Nasdaq Composite Index climbed above 5,000 for the first time in 15 years, as health-care and technology companies slid.

Health-care companies in the Standard & Poor’s 500 Index lost 0.9 percent, after reaching an all-time high Monday. Alibaba Group Holding Ltd. fell to the lowest since it began trading in September. Ford Motor Co. slipped 2.4 percent after a drop in February light-vehicle sales.

The S&P 500 declined 0.5 percent, its worst drop since January, to 2,107.78 at 4 p.m. in New York. The Dow Jones Industrial Average lost 85.26 points, or 0.5 percent, to 18,203.37. Both gauges reached records Monday. The Nasdaq Composite fell 0.6 percent to 4,979.90.

“The biggest thing is we’re at the record highs and a lot of people, at the margin, are taking profits,” Jim Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management, which oversees $338 billion, said by phone. “The sectors getting hit today are the big momentum sectors: consumer cyclicals, health care and technology.”

It has taken two bull markets and more than 4,500 days for the Nasdaq Composite to get close to making up all the ground lost in the dot-com collapse. The index surged 7.1 percent in February, its best month since 2012.

The S&P 500 rose to fresh records four times in February, while the Dow Jones Industrial Average climbed 5.6 percent for its best month since January 2013. The index also topped its record from December for the first time in 2015.

ECB Stimulus

Economic reports this week may give clues on when the Federal Reserve may increase its benchmark interest rate. Data may show factory orders rose in January after slipping the previous month, while payrolls climbed in February as the unemployment rate fell, economists forecast.

Investors are also awaiting details of the European Central Bank’s debt-purchase program on Thursday. ECB President Mario Draghi in January announced a 1.1 trillion-euro ($1.2 trillion) quantitative-easing plan to counter slowing growth and the threat of deflation.

“This week is very much about the ECB and the jobs report,” said Witold Bahrke, an asset-allocation strategist at Nomura International Plc in London. “We had a very strong run in the recent week. It’s only natural that people will step a bit more into the sidelines, especially when you’re heading into these big events at the end of the week when we could see larger moves.”

Costco Wholesale Corp. and Staples Inc. are among S&P 500 companies reporting later this week. Some 98 percent of companies have released earnings, with 74 percent of those beating projections and 56 percent topping sales estimates.

Corporate Profits

Analysts predict profit at S&P 500 companies will drop 4.9 percent in the current quarter after a 4.6 percent increase in the final three months of 2014, data compiled by Bloomberg show.

Eight of 10 main industries in the S&P 500 declined, led by a 0.9 percent drop in health-care. The group climbed 4.1 percent in February and reached a record Monday. The Nasdaq Biotechnology Index dropped 0.6 percent Tuesday.

Micron Technology Inc. lost 5.1 percent, leading semiconductor companies lower after Nomura Securities International Inc. analyst Romit Shah cut Micron’s rating to neutral from buy and reduced his price target to $30. Applied Materials Inc. and Lam Research Corp. fell more than 3.2 percent.

Transports Fall

The Dow Jones Transportation Average slipped 0.5 percent for the fourth decline in five sessions, with railroads Norfolk Southern Corp., CSX Corp. and Union Pacific Corp. down at least 1.6 percent.

Alibaba Group Holding Ltd. tumbled 2.9 percent to the lowest since it began trading in September, after rival online retailer JD.Com Inc. reported better-than-projected earnings, fueling concern that Alibaba’s sales growth may be slowing. The company is also working to keep operating in Taiwan after being told to leave after alleged investment violations.

Automobile stocks slid as Ford Motor said February light-vehicle sales slipped 2 percent after analysts projected an increase. General Motors Co.’s sales increase missed estimates as cold weather slowed showroom traffic. Ford fell 2.4 percent, and parts maker Delphi Automotive Plc lost 0.2 percent.

Energy stocks in the S&P 500 added 0.2 percent as oil rallied 1.9 percent. Valero Energy Corp., Pioneer Resources Co. and Denbury Resources Inc. climbed at least 2.4 percent.

The Chicago Board Options Exchange Volatility Index rose 6.3 percent to 13.86. The gauge, know as the VIX, lost 36 percent in February for its biggest monthly drop on record.

More than 6.4 billion shares changed hands Tuesday on U.S. exchanges, 7 percent below the three-month average.

Stock Buybacks

Best Buy Co. rose 1.4 percent. The world’s largest electronics chain said it will offer a special dividend of 51 cents a share, or $180 million, and increase its quarterly payout 21 percent to 23 cents. The company also said it will repurchase $1 billion in shares over the next three years.

Stock buybacks vaulted to a record in February, with chief executive officers announcing $104.3 billion in planned repurchases. That’s the most since TrimTabs Investment Research began tracking the data in 1995 and almost twice the $55 billion bought a year earlier.

Companies in the S&P 500 have spent more than $2 trillion on their own stock since 2009, underpinning an equity rally in which the index has more than tripled. They were on pace to spend a sum equal to 95 percent of their earnings on repurchases and dividends in 2014, data compiled in October showed.