Week in Review: Nasdaq Composite falls as tech selloff resumes

A selloff in the bull market’s biggest winners overshadowed optimism on Federal Reserve monetary stimulus.

Apr 5, 2014 @ 6:58 am

The Nasdaq Composite Index fell for the week, while the Standard & Poor’s 500 touched a record, as a selloff in the bull market’s biggest winners overshadowed optimism on Federal Reserve monetary stimulus.

Equities sank during the last two sessions of the period, as investors resumed a selloff in technology and small-cap stocks. Google Inc. Class A shares slumped 2.7% during the week to the lowest since December. Facebook Inc. lost 5.4% for a fourth straight weekly slide.

The Nasdaq Composite fell 0.7% to 4,127.73 for the five days, erasing an earlier gain of as much as 3.1%. The S&P 500 rose 0.4% to 1,865.09 and the Dow Jones Industrial Average added 89.65 points, or 0.6%, to 16,412.71.

“The market is trying to find a base and get more of a fix on what the stocks are worth,” John Carey, a fund manager at Pioneer Investment Management Inc., a Boston-based firm that manages about $220 billion worldwide, said in a phone interview. “There may be some nervousness going into first-quarter earnings and whether that will justify these prices we’re seeing.”

The Nasdaq Composite trades at 31 times reported earnings of the companies in the index. That’s almost twice the ratio for the S&P 500, which trades at 17 times earnings. The Nasdaq 100 Index of the biggest technology stocks sank 0.9% for the week after plunging 2.7% on April 4 for the steepest one- day slide since 2011. The gauge surged 35% in 2013.

Netflix Inc. sank 6% to $337.31, extending losses to a fourth straight week. The stock nearly quadrupled in 2013. Facebook declined 5.4% to $56.75 after doubling last year. Google Class A shares lost 2.7% to $545.25 while its Class C shares sank 3%. The stock in the largest search engine effectively split when the company issued more than 300 million nonvoting shares in a special dividend.

The Russell 2000 Index gained 0.1% for the five days, trimming an advance of as much as 3.7%. The gauge of small companies sank 3.5% in the previous week, its worst since 2012.

The Nasdaq Biotechnology Index began the week with its best two-day gain in almost two months before sinking to a loss of 1.7%. The gauge has fallen six straight weeks, the longest streak since 1998, after rising 79% in the year through Feb. 28.

The S&P 500 surged 1.8% through the first three sessions, closing at all-time highs on April 1 and 2, after Federal Reserve Chair Janet Yellen signaled continued monetary support. The gauge slid 1.4% on the last two days of the week amid the technology selloff.

DATA WATCH

Data during the week boosted optimism that the economy is shaking off its winter doldrums and building momentum into the second quarter. Growth in manufacturing accelerated in March, driven by gains in production and orders. The government’s jobs report showed employers boosted payrolls last month and the unemployment rate held at 6.7%.

Reports from hiring to factory output had shown weakness this year as freezing temperatures and mountains of snow kept shoppers indoors, grounded flights and made it harder for shippers to fill product orders.

The Chicago Board Options Exchange Volatility Index, a gauge for U.S. stock volatility known as the VIX, fell 3.1% to 13.96 for a third week of declines, the longest streak since September.

“We’ve priced in now a marginally stronger economy and marginally better numbers coming out of companies,” Tim Hoyle, director of research at Radnor, Pennsylvania-based Haverford Investments, said in a phone interview. His firm oversees about $6 billion. As earnings season approaches, “what we’re going to look for is forward guidance,” he said.

Alcoa Inc. is scheduled to report first-quarter results on April 8 in what is considered the unofficial start of the earnings season. Analysts estimate profits for companies in the S&P 500 grew 1% in the period, according to data compiled by Bloomberg. That’s down from 8.9% during the fourth quarter.

(Bloomberg News)

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