U.S. Stocks Tumble as Apple Selloff Overshadows Facebook Rally

  • Facebook gains on earnings, though tech shares crumble
  • St. Jude Medical, DreamWorks Animation soar on buyout deals

Stocks Tumble: Is This the Start of Another Leg Down?

U.S. stocks fell, with the Standard & Poor’s 500 Index capping the biggest drop in three weeks, as Apple Inc. led an afternoon selloff in technology shares, overshadowing corporate deals and strong results from Facebook Inc.

Sentiment was fragile heading into today’s session after the Bank of Japan refrained from adding more stimulus measures, and turned sour after Carl Icahn said he sold out of his stake in Apple Inc. That sent the iPhone maker’s shares to a two-month low with tech companies tumbling along with it, despite Facebook surging to a record. After the market closed, Amazon.com Inc. rallied on better-than-estimated results.

The S&P 500 Index fell 0.9 percent to 2,075.81 at 4 p.m. in New York, the most since April 7. The gauge is still up 0.8 percent for the month. The Dow Jones Industrial Average slid 210.79 points, or 1.2 percent, to 17,830.76, the biggest decline in more than two months. The Nasdaq Composite Index lost 1.2 percent to a one-month low, extending its longest retreat since January. About 8.1 billion shares traded hands on U.S. exchanges, 3 percent above the three-month average.

“When the news on Icahn’s Apple sale came out, that really got people worried,” said Matt Maley, an equity strategist at Miller Tabak & Co. LLC in New York. “It’s hard for the stock market to rally to new highs when Apple isn’t moving higher. Facebook seemed to offset the BOJ news, but as Apple moved to new lows, it got people more concerned. It overtook the positive news in the market.”

Equities had overcome an opening slide, with the S&P 500 erasing losses within the first hour of trading as Facebook helped carry tech shares higher. A $25 billion buyout of St. Jude Medical Inc. by Abbott Laboratories, and Comcast Corp.’s $3.8 billion deal to acquire DreamWorks Animation SKG Inc. also buoyed sentiment. The two companies soared more than 24 percent. Tech’s advance withered, however, amid weak earnings news that has dogged the group, and declines accelerated as Apple slumped.

The S&P 500 had rebounded as much as 15 percent from a 22-month low in February, taking its valuation to nearly 18 times estimated profits, near last year’s high. The benchmark has labored for six sessions to press beyond a four-month peak reached on April 20 amid mixed quarterly results from corporate America.

“I’ve certainly been surprised by the ability of the market to hang in there with as many mediocre earnings as we’ve seen so far and I think it was too many,” said Michael Antonelli, an institutional equity sales trader and managing director at Robert W. Baird & Co. in Milwaukee. “It shows people are looking to sell rallies. Late day price action like this is really, really bad for short-term sentiment.”

Among shares moving on earnings news Thursday, GNC Holdings Inc. plunged 29 percent the most in five years as a public company after earnings missed estimates. Cardinal Health Inc. saw its worst drop since 2009 after narrowing its full-year profit outlook below analysts’ predictions. That weighed on competing drug distributor McKesson Corp., which dropped 4.8 percent, the most in three months.

Cliffs Natural Resources Inc. jumped 25 percent, its best one-day gain in more than seven years after its revenue beat estimates and the miner lifted its spending outlook. Pilgrim’s Pride Corp. surged the most since 2013 after earnings exceeded predictions and the chicken producer declared a special dividend.

Amazon jumped 12 percent as of 4:33 p.m. after its sales and earnings topped estimates, adding to evidence that the company can make money even while investing heavily in endeavors like one-hour delivery and marketing new gadgets like the Echo voice-activated home assistant.

Patient Fed

Stocks climbed for a second day on Wednesday after the Federal Reserve reassured investors by signaling interest-rate increases will be gradual. The Fed kept its benchmark rate unchanged, saying it will monitor economic developments amid slow but steady growth. Traders are now pricing in a nearly 60 percent chance of higher borrowing costs in December, the first month with better than even odds for a boost.

Monetary policy during the past seven years has been a strong support to a bull market that is now the second-longest ever at 2,607 days, matching a rally from 1949 to 1956. Only the dot-com bubble of the 1990s lasted longer at 3,452 days. Stocks are currently stuck in their longest period of stasis since the rally began, going 11 months without posting a 52-week high.

That may be due in part to an earnings season predicted to be the worst since the financial crisis, with analysts expecting a 9.2 percent decline in first-quarter profit for firms in the S&P 500. Of those that have released results so far, 78 percent beat profit projections and 59 percent topped sales estimates.

Data Watch

As policy makers and investors weigh data to discern the path for rates, a report today showed the economy expanded in the first quarter at the slowest pace in two years. A measure of inflation tied to personal spending and excluding volatile food and fuel costs climbed 2.1 percent, the most in four years and in line with policy makers’ target.

In Thursday’s trading, nine of the S&P 500’s 10 main industries fell, with technology, energy, consumer discretionary and financial shares losing more than 1.1 percent. The tech group marked a sixth straight drop, the lengthiest since Jan. 8, with Apple posting its longest losing streak in more than three years.

The Chicago Board Options Exchange Volatility Index jumped 10 percent to 15.14 to a two-week high. The measure of market turbulence known as the VIX erased losses for April, putting it on track for the fifth monthly gain in the last six.

Technology shares erased a morning gain of 0.6 percent, with the group continuing to struggle amid earnings news that was less impressive than Facebook’s. Xilinx Inc. fell 8.7 percent after its fiscal 2017 profit forecast trailed estimates. Symantec Corp. sank 6.7 percent as the world’s biggest maker of cyber-security software cut its earnings and sales forecasts for the fiscal fourth quarter and said Chief Executive Officer Michael Brown will step down.

International Business Machines Corp. lost 2.3 percent. The tech giant’s debt ratings outlook was revised to “negative” by S&P after the company posted its 16th consecutive quarter of declining revenue and reduced its forecast for second-quarter profits. Microsoft Corp. and Alphabet Inc. sank at least 2 percent, with both reaching two-month lows.

Energy producers fell from a five-month high, even as crude oil increased for a third session, up 1.5 percent. Marathon Oil Corp. and Apache Corp. slid more than 3.3 percent, while Southwestern Energy Co. dropped 6.4 percent after a two-day gain of 13 percent.

Other shares moving on corporate news included Hanesbrands Inc., which rallied 6.3 percent to an eight-week high after agreeing to acquire Australia’s Pacific Brands Ltd. that values the company at about $800 million. FirstEnergy Corp. tumbled 9.9 percent, the steepest since 2008, after regulators agreed to review its power contracts with American Electric Power Co. in Ohio.

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