U.S. Stocks Fall as JPMorgan Drops, Tech Shares Fluctuate

By Updated at 2014-04-11 16:17:29 +0000

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U.S. stocks fell, after the biggest drop for the Standard & Poor’s 500 Index in two months, as technology shares swung between gains and losses while JPMorgan Chase & Co. slid on disappointing earnings.

JPMorgan lost 3.4 percent as profit fell 19 percent on lower fixed-income trading and mortgage revenue. Netflix Inc. dropped 1 percent while Facebook Inc. jumped 0.9 percent, after technology shares tumbled the most since 2012 yesterday.

The S&P 500 (SPX) fell 0.3 percent to 1,827.24 at 11:53 a.m. in New York. The gauge has slipped 2 percent this week, poised for the biggest loss since January. The Nasdaq Composite Index dropped 0.3 percent, after briefly erasing an early loss. The Dow Jones Industrial Average slid 72.86 points, or 0.5 percent, to 16,097.36. Trading in S&P 500 shares was 34 percent above the 30-day average at this time of day.

“You need to shake out some of the speculative money and throw water on the irrational exuberance,” Randy Frederick, managing director of trading and derivatives at Charles Schwab Corp. which manages $2.2 trillion in client assets, said in a phone interview. “It’s a good reminder that markets don’t go straight up. While the long-term is positive, we need to have these steps back along the way. We need this kind of pullback.”

The S&P 500 declined 2.1 percent yesterday and the Nasdaq Composite slumping 3.1 percent, its biggest decline since November 2011, after technology shares slumped as investors sold the biggest winners in the five-year market rally. The S&P 500 has fallen 3.4 percent from its record this month. A gauge of Internet stocks tumbled the most since 2011 yesterday, while biotechnology shares approached a bear market.

Valuation Concern

The selloff that began last week was sparked by growing concern that valuations may be too high as earnings season begins. The Nasdaq Composite trades at 35 times reported earnings of the companies in the index. That’s double the ratio for the S&P 500, which trades at about 17 times earnings.

Profit for members of the S&P 500 probably fell 0.9 percent in the first quarter, analysts now forecast, after anticipating a 6.6 percent rise in January. Sales increased 2.6 percent, according to projections.

Analysts have reduced earnings estimates more than they usually do over the last three months, according to Goldman Sachs Group Inc. strategists led by David Kostin. Average profit forecasts for S&P 500 companies fell about 4 percent in the first quarter, a percentage point more than normal, they wrote.

Bank Earnings

JPMorgan dropped 3.4 percent to $55.44. Chief Executive Officer Jamie Dimon warned investors in February that trading had fallen 15 percent for the first two months of 2014, a decline analysts blamed on a reduction in the Federal Reserve’s bond purchases.

Wells Fargo & Co. rose 1.2 percent to $48.30. The most profitable U.S. bank in 2013 posted a 14 percent rise in earnings as fewer customers missed loan payments.

Alcoa Inc. unofficially started the earnings season on April 8 with profit that beat forecasts. About 54 companies in the S&P 500 are scheduled to report results next week, including Coca-Cola Co., Goldman Sachs Group Inc., Yahoo! Inc., Google Inc. and General Electric Co.

“We can still get decent earnings, but all in all, the total level of earnings will probably not grow as much as expected,” Nicola Marinelli, who helps oversee $200 million at Sturgeon Capital Ltd. in London, said by telephone. “Earnings will have subdued growth. Equity market can remain strong but that doesn’t mean much stronger.”

Economic Data

The Thomson Reuters/University of Michigan preliminary April index of sentiment rose to 82.6 from 80 a month earlier. The median estimate in a Bloomberg survey of 66 economists called for the measure to increase to 81. Estimates ranged from 79 to 89.8. The index averaged 89 in the five years before December 2007, when the last recession began, and 64.2 in the 18-month contraction that followed.

Separate data showed producer prices in the U.S. rose more than forecast in March, led by the biggest gain in the cost of services in four years.

The selloff that is sending shares in the Nasdaq 100 Index to the wildest swings since Europe’s debt crisis is failing to stir equal panic in option prices. During April, the Nasdaq 100 has moved 1.5 percent a day on average, the most since November 2011. At the same time, prices for options are below levels from February and October.

“They’ll have to show a lot of pessimism before this decline is over,” said Bruce Bittles, chief investment strategist at Milwaukee-based RW Baird & Co., which oversees $110 billion. “It certainly looks like this correction could carry on.”

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