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The Nasdaq slid 1.7%, trimming its gain in 2015 to 3.7%. Photo: AFP
The Nasdaq slid 1.7%, trimming its gain in 2015 to 3.7%. Photo: AFP

US stocks drop as technology slumps; dollar weakens, oil gains

S&P, Dow and Nasdaq are within 2% of their records amid speculation the Fed won't rush to raise rates

New York: US stocks fell, with the Nasdaq Composite Index dropping the most in two weeks as technology shares tumbled. The dollar weakened, while Treasury yields fluctuated near the lowest since early February.

The Nasdaq slid 1.7% at 12:34 pm in New York, trimming its gain in 2015 to 3.7%. Netflix Inc. sank 2.6 percent, while Biogen Idec Inc. lost 3.8%. The Standard & Poor’s 500 Index retreated 0.9%, and the Stoxx Europe 600 Index capped its worst day in two months after closing within three points of a record. The Bloomberg Dollar Spot Index fell 0.1%. US crude added 1.8%, while copper slipped 0.5%.

The Nasdaq headed for a third straight loss, the longest slide since January, after climbing to within 20 points of its dot-com-era record. The Nasdaq Biotechnology Index, which rallied 21% in 2015 through Friday, sank 3.2% as some of the quarter’s best performers retreated. Orders for durable goods unexpectedly dropped in February. The result reinforced a trend of mixed economic data after the Federal Reserve signaled it will monitor the economy to guide its decision on raising borrowing costs.

“We’re bouncing around, and that has more to do with sector rotation and asset allocation going into quarter-end than with any one number," Michael Block, chief equity strategist at Rhino Trading Partners LLC in New York, said in a phone interview. “There’s a lot of macro panic and confusion out there, and that’s not the kind of landscape the Fed wants to start being hawkish with."

Technology slump

The S&P 500 had its worst day in two weeks on Tuesday after data on consumer prices showed inflation was beginning to pick up. US equity benchmarks had rallied to within 1% of all-time highs on speculation the Fed won’t raise rates until later this year.

Technology shares in the S&P 500 plunged 1.4% to lead losses among eight of the 10 main groups in the gauge. Energy producers gained 1.3% as oil advanced in New York.

Biogen and First Solar Inc., which surged more than 35% in 2015 through last Friday’s trading, slipped at least 3.5% on Wednesday. Microsoft Corp. slid 2.5% to lead losses in the Dow Jones Industrial Average, while Intel Corp. and International Business Machines Corp. sank 1.9%.

Kraft Foods Group Inc. surged 38% after 3G Capital, the Brazilian private-equity firm, agreed to acquire it in partnership with Warren Buffett’s Berkshire Hathaway Inc. and merge it with ketchup maker H.J. Heinz.

Quarterly gain

While the S&P 500 is among the worst-performing developed- market indexes this year, it is still headed for its ninth consecutive quarterly advance. That would be the longest winning streak since 1998. The gains pushed equity valuations to the highest in about six years.

Fed officials last week opened the door to a rate rise as early as June, while emphasizing no timetable had been set for their first increase since 2006. The benchmark federal funds rate has been held near zero since December 2008.

Fed Bank of Chicago president Charles Evans said inflation remains too low to justify an interest-rate increase in 2015.

“I see no compelling reason for us to be in a hurry to tighten financial conditions until" it’s clear that inflation will reach the Fed’s 2% target within one or two years, Evans said in London on Wednesday. “Economic conditions are likely to evolve in a way such that it will be appropriate to hold off on raising short-term rates until 2016."

On Friday, a report will likely show the world’s largest economy expanded at a rate of 2.4% in the fourth quarter, economists surveyed by Bloomberg forecast, above the 2.2% growth reported last month.

Driver’s seat

“Central banks are still very much in the driver’s seat," said Alessandro Bee, a strategist at Bank J Safra Sarasin in Zurich. “The Fed turned more dovish last week and stocks really liked that, but all this is still very dependent on what happens to the economy in the next months. In the short-term, it’s a good time to wait for more clarity."

The dollar erased gains from Tuesday, resuming a slide that started after the Fed’s policy meeting last week. The US currency dropped 0.3% to ¥119.40, while the euro added 0.2% to ¥131.04.

Technology shares also weighed on the Stoxx 600, as the group sank 2.9%. All but two of the 19 industries in the broader index retreated Wednesday. The gauge closed last week at its highest level since 2000, only 0.4% away from an all- time high.

Valuation discount

That pushed the Stoxx 600 to the highest valuation based on projected profits in at least 10 years, relative to its own history and to the Standard & Poor’s 500 Index, data show.

“The historical valuation discount of European indices against US peers has disappeared," said Tristan Abet, a Paris-based strategist at Louis Capital Markets LP. “Investors refuse to buy cyclical domestic stocks like banks and continue to play global stocks that are exposed to foreign growth. The sectors at risk remain those related to the commodity cycle."

Stocks briefly pared losses earlier in the session after German business confidence increased for a fifth month in March, adding to signs that Europe’s largest economy is back in position as the region’s economic powerhouse. The report comes a day after a survey showed growth in manufacturing and services accelerated to the fastest in eight months in March.

The European Central Bank (ECB) approved an increase of more than ¥1 billion ($1.1 billion) in the emergency funds available to Greek lenders, two people familiar with the decision said.

Greek funds

While policy makers are ensuring lenders have sufficient liquidity to operate, the ECB’s supervisory arm yesterday made it illegal for domestic banks to increase their holdings of short-term government debt.

German bunds advanced, pushing 10-year yields toward a record low, while Greek bonds declined alongside Portuguese and Italian securities, as concern grew that Greece’s solvency will erode, boosting demand for the safest fixed-income assets.

Greece has until Monday to show how it will follow through on reform commitments after the euro area ruled out speedy access to aid funds, three officials said following a conference call of finance ministry deputies.

“The moves in the bond market suggested there’s some lingering concerns about Greece," said Luca Cazzulani, a senior fixed-income strategist at UniCredit SpA in Milan. “But that’s not the only reason. Peripheral bonds are also weighed by the amount of supply coming into the market this week."

Europe bonds

Greek 10-year yields rose 14 basis points to 10.94%. The rate on similar-maturity Italian bonds climbed one basis point to 1.34%, while Spanish rates were little changed at 1.28%. Portugal’s 10-year yield rose 2 basis points to 1.82%. UK 10-year yields fell two basis points to 1.48%, dropping for a sixth day.

The MSCI Emerging Markets Index lost 0.2%, halting a seven-day advance that added 4.1% to the gauge. It was the longest rally in seven months.

Saudi Arabia’s Tadawul All Share Index slid 3.8%, the most in three months, after forces loyal to Yemen’s Shiite Muslim rebels edged closer to the stronghold of Saudi-backed President Abdurabuh Mansur Hadi.

The world’s growth engines after the 2008 financial crisis, emerging markets are losing momentum as manufacturing in China contracts and recessions loom in Brazil and Russia.

At Credit Suisse Group AG, economists predict the expansion of developing countries will slow to 3.8% this year, the weakest since 2009. By contrast, they see a 2.2% pace in industrial nations, the strongest in five years.

China, Oil

Mainland China’s benchmark Shanghai gauge fell for the first time in 11 days, ending its longest winning streak since since a 14-day stretch in May 1992. The measure gained 13% this year, adding to last year’s world-beating, 53% rally.

West Texas Intermediate oil for May delivery rose 1.6% to $48.25 a barrel in New York as a falling dollar bolstered the appeal of commodities to investors even as inventories rose to a three-decade high.

Crude supplies increased 8.17 million barrels to 466.7 million last week, the most in records compiled since August 1982 by the Energy Information Administration.

Gold headed for its longest rally since August 2012 as the durables goods report added to signs of sputtering US economic expansion, fueling bets interest rates will stay low for longer.

Spot prices climbed for a sixth straight session, rising every day since the Fed’s policy meeting. Bullion for immediate delivery added 0.5% to $1,198.94 an ounce, according to Bloomberg generic pricing. Prices touched $1,199.81, the highest since 6 March.

Copper futures fell, snapping the longest rally in four months, as the economic data fueled demand concerns. Futures for May delivery dropped 0.6% to $2.7875 a pound in New York. Through Tuesday, the price dropped 4.8% in the past 12 months amid signs of slower economic growth in China, the world’s biggest user of industrial metals. Bloomberg

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