U.S. Stocks Fall as Drugmaker Selloff Ends Lull Before Yellen

Updated on
  • Drug price hikes draw lawmaker criticism, spooking investors
  • Health-care shares fall the most since June Brexit vote

A selloff in drugmakers dragged U.S. stocks lower, a jolt to markets that had been in a holding pattern before a speech Friday from Federal Reserve Chair Janet Yellen that may provide clues on when to expect higher borrowing costs.

Losses accelerated in afternoon trading, led by Mylan NV’s 5.4 percent slide, after the company drew the ire of lawmakers over a 400 percent increase in the price of a life-saving allergy shot. Investors were further spooked after Democratic presidential candidate Hillary Clinton called the price hike “outrageous,” a reminder of critical remarks she made last year on drug prices which helped spur a 20 percent selloff in the Nasdaq Biotechnology Index.

The S&P 500 Index fell 0.5 percent to 2,175.44 at 4 p.m. in New York, to a two-week low. The Nasdaq Composite Index dropped 0.8 percent, its biggest slide in three weeks. The Dow Jones Industrial Average lost 65.82 points, or 0.4 percent, to 18,481.48. About 6.2 billion shares traded hands on U.S. exchanges, 9 percent lower than the three-month average.

“You have the news about drug pricing, and you had oil come down a bit,” said Matt Maley, an equity strategist in New York at Miller Tabak & Co LLC. “I don’t know why we reacted to them later in the day, other than we’re getting closing to Yellen’s speech on Friday. You had the VIX higher all day before the late-afternoon move down. It was almost like options traders were anticipating this kind of selloff.”

The late-session slide disrupted a recent period of tranquility that has seen the CBOE Volatility Index on track this month for its lowest mean level for any August since 1994. It had held near a two-year low before a spike higher today, though the measure of market turbulence known as the VIX has remained below 15 for 36 days, the longest since 2014.

Health-care shares in the S&P 500 fell the most in two months, as Allergan Plc and Biogen Inc. lost more than 2.7 percent, while Merck & Co. dropped 1.3 percent. The Nasdaq Biotech index sank 3.4 percent, its steepest retreat since the U.K. vote to leave the European Union. Raw-materials tumbled on sinking metals prices, with copper miner Freeport-McMoRan Inc. falling 7.5 percent, also the most in two months.

“The health-care and biotech selloff was pretty significant -- the comments from Hillary slapped these stocks all the way down,” said Dave Lutz, the head of ETF trading for JonesTrading Institutional Services. “Biotech is what took the wind out of the sails, nobody saw that coming. It reminds investors of the headline risk going into the election in this sector.”

Hawkish remarks from Fed officials last week, lofty stock prices and lackluster data had combined to curb the rally that drove the S&P 500 to fresh records this month amid better-than-estimated earnings. A report today showed sales of previously owned homes last month dropped more than forecast from a nine-year high. The main equity index is up 19 percent since reaching a 22-month low in February, and trades near its highest valuation in more than decade, based on estimated income.

With earnings season now all but complete, investors are turning their attention more toward the health of the economy and the prospects for higher borrowing costs. Anticipation has been building on whether Fed Chair Yellen will endorse recent comments from other central-bank officials that indicated rates could rise as early as next month. Odds of an increase in September have climbed to 28 percent, from 10 percent a month ago, while bets on a December hike have risen to almost 54 percent from 36 percent at the end of July.

— With assistance by Camila Russo

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