U.S. Stocks Drop on Slowing Factory Data as Biotech Shares Slump

Mar 24, 2014 4:54 pm ET

March 24 (Bloomberg) -- U.S. stocks fell for a second day as economic data signaled a slowdown in American manufacturing and some banks said Russia’s economy will enter a recession.

Alexion Pharmaceuticals Inc. tumbled 6.3 percent as the Nasdaq Biotechnology Index slumped more than 10 percent from a record last month. Tesla Motors Inc. and Facebook Inc., among this year’s best performers in the Nasdaq 100 Index, dropped at least 3.8 percent, dragging the technology gauge to its lowest level since February. Netflix Inc. slumped 6.7 percent on a report that Apple Inc. has held talks with Comcast Corp. about streaming live and on-demand television. Apple rose 1.2 percent.

The Standard & Poor’s 500 Index fell 0.5 percent to 1,857.44 at 4 p.m. in New York. The Dow Jones Industrial Average slid 26.08 points, or 0.2 percent, to 16,276.69. About 7.2 billion shares changed hands on U.S. exchanges, 7.5 percent higher than the three-month average.

“It’s expected choppiness, but it’s unnerving nonetheless, especially when the areas of strength are all of a sudden in question,” Chris Bouffard, chief investment officer with The Mutual Fund Store in Overland Park, Kansas, said in a phone interview. His firm oversees $9 billion. “The high flyers are really being reeled in.”

The Markit Economics preliminary index of U.S. manufacturing decreased to 55.5 in March from 57.1 a month earlier, the London-based group said today. A reading above 50 indicates expansion. This month’s reading was the second-highest since January 2013. In China, a report showed manufacturing industry weakened for a fifth straight month.

Russian Sanctions

Sanctions imposed by the U.S. and the European Union are pushing Russia toward a recession as the intensity of their economic penalties increases after the annexation of Crimea earlier this month.

Banks including state-run VTB Capital say the world’s ninth-biggest economy will shrink for at least two quarters as penalties for annexing Crimea rattle markets, curb investment and raise the cost of borrowing. Sanctions that have so far focused on individuals via visa bans and asset freezes may be expanded to target specific areas of the economy.

The Group of Seven major powers decided to hold a summit in Brussels in June instead of a planned G-8 meeting in Sochi in the latest sanction against Russia. President Barack Obama and his fellow G-7 leaders met in The Hague today to agree on the next steps in the crisis, amid growing concern that Russia is building up its forces on the border with Ukraine.

Weekly Gain

Stocks had their biggest gains in a month last week, with the S&P 500 rising 1.4 percent, as data from jobless claims to manufacturing showed the economy is strengthening. The benchmark index reached an intraday record on March 21, touching 1,883.97 before retreating.

Federal Reserve policy makers met last week as economic reports indicated the economy is pulling out of a slowdown linked to unusually harsh winter weather. Reports on housing, gross domestic product and durable goods are among the economic data due this week.

In one corner of the U.S. equity market, investor enthusiasm is exceeding the frenzy of the Internet bubble.

Small-cap shares tracked by the Russell 2000 Index have rallied for seven straight quarters, the longest stretch ever, sending valuations 26 percent above levels at the height of the 1990s rally. Gains in stocks from LogMeIn Inc. to Athenahealth Inc. have pushed the gauge up 248 percent since the bull market began five years ago, leaving price-earnings ratios about three times as high as for shares in the S&P 500.

‘Risk Unwind’

The index for small-caps fell 1.3 percent today after dropping as much as 2 percent. The S&P 500 pared losses after sinking below 1,850, a level that also found support on March 19.

The sell-off in small-caps and biotech stocks “seemed to stabilize and markets took that as a cue,” Yousef Abbasi, market strategist at JonesTrading Institutional Services LLC, a Westlake, California-based broker, said in an interview. “Considering today’s under-impressive global growth data and the risk unwind that occurred this morning, bears had every opportunity to sell us off more dramatically and failed.”

The Chicago Board Options Exchange Volatility Index, a gauge for U.S. stock volatility, added 0.6 percent to 15.09. The index, also known as VIX, last week fell the most since February, sinking 16 percent.

Health-Care Retreat

Health-care and consumer-discretionary companies, the best performing industries over the past 12 months, led today’s retreat, falling at least 1 percent.

The Nasdaq Biotechnology Index dropped 3 percent, after rallying 17 percent in the first two months of the year. It has tumbled 12 percent from its Feb. 25 record.

Alexion Pharmaceuticals, maker of the rare-disease drug Soliris, declined 6.3 percent to $149.76. Biogen Idec Inc., producer of multiple sclerosis drugs Avonex, slipped 1.9 percent to $312.60.

The Nasdaq 100 slipped 1 percent 3,617.39, the lowest close since Feb. 10. Tesla fell 3.8 percent to $220.17. The electric automaker had the best performance in the Nasdaq 100 this year through the end of last week, with a 52 percent jump.

Facebook declined 4.7 percent to $64.10. The social network’s stock rallied 23 percent in 2014 before today for the seventh-best performance in the technology gauge.

NetApp Inc. fell 3.2 percent to $36.58. The maker of data- storage equipment was cut to underweight, an equivalent of sell, from equalweight by Morgan Stanley. The company’s cost cuts may not be enough to expand margins amid increased competition, analyst Katy Huberty said in a note.

Video-Streaming

Netflix, the world’s largest subscription video-streaming service, dropped 6.7 percent to $378.90 for the biggest drop in the S&P 500. The Wall Street Journal reported that Apple has held talks with Comcast, America’s largest cable operator, about streaming live and on-demand television. Comcast has discussed providing preferential access to its cables for video content sent to Apple’s set-top boxes, the newspaper said, citing unidentified people familiar with the matter.

Apple added 1.2 percent to $539.19.

Herbalife Ltd. jumped 6.7 percent to $52.86. The nutrition and weight-loss company agreed to nominate three people proposed by billionaire Carl Icahn to its board. If investors approve the nominees, Icahn will have five of the 13 board members.

Nu Skin Enterprises Inc. jumped 18 percent to $88.66. The the direct seller of skin and hair cleansers was fined $540,000 in China for selling items illegally and making product claims it couldn’t verify, part of a government probe into alleged abuses by the company. The announcement signals that Nu Skin could move toward “resuming normal activities in the market,” Mark Astrachan, an analyst with Stifel Nicolaus & Co., wrote in a note.

--With assistance from Jonathan Morgan in Frankfurt.