U.S. Stocks Drop as Ukraine, Retail Earnings Overshadow GDP Data

Aug 28, 2014 4:58 pm ET

Aug. 28 (Bloomberg) -- U.S. stocks fell, sending the Standard & Poor’s 500 Index below 2,000, as violence in Ukraine and disappointing retail earnings overshadowed data showing the economy expanded more than estimated.

Williams-Sonoma Inc. tumbled 12 percent after its third- quarter earnings forecast missed analysts’ estimates. Abercrombie & Fitch Co. declined 4.8 percent as second-quarter sales fell more than analysts had projected. Guess? Inc. sank 8.8 percent after the retailer cut its annual earnings forecast. Signet Jewelers Ltd., which operates Zales and Kay Jewelers, climbed 7.7 percent after reporting earnings that beat estimates.

The S&P 500 dropped 0.2 percent to 1,996.74 at 4 p.m. in New York, ending a three-day advance. The Dow Jones Industrial Average slid 42.44 points, or 0.3 percent, to 17,079.57. The Nasdaq 100 Index retreated 0.2 percent for the first loss in 12 sessions. About 4.2 billion shares changed hands on U.S. exchanges, the lowest for a full day of trading this year.

“Whenever you push through big levels like the 2,000 mark you get some profit-taking, which normal at this point, that’s a big milestone to push through,” Jeff Kravetz, the Phoenix-based regional investment director at US Bank’s Private Client Reserve, said via phone.

The U.S. equity index has rebounded about 4.6 percent from a three-month low on Aug. 7 on speculation the Federal Reserve will keep interest rates low as the economy strengthens. The S&P 500 closed above 2,000 for the first time on Aug. 26.

Economic Expansion

The U.S. economy expanded more than previously forecast in the second quarter, propelled by the biggest gain in business investment in more than two years. Gross domestic product rose at a 4.2 percent annualized rate, up from an initial estimate of 4 percent and following a first-quarter contraction, Commerce Department figures showed.

Other reports showed contracts to purchase previously owned homes rose more than forecast in July. The number of Americans filing for unemployment benefits was little changed last week near the lowest level in seven year.

“If you look at unemployment claims that should suggest we’ll get a very nice healthy payroll number next Friday,” Wilmer Stith, a Baltimore-based money manager at Wilmington Trust Investment Managers, said via phone. “This patchwork of broader and deeper economic expansion is well under way in the United States.”

Russian President Vladimir Putin discussed in a phone call with Italian Prime Minister Matteo Renzi the need to halt the bloodshed in Ukraine, Putin’s office said in e-mailed statement. Ukrainian President Petro Poroshenko pledged to step up the country’s defenses against what he earlier called a “de facto” Russian incursion after separatists gained ground in intensified fighting.

Geopolitical Events

The five months of unrest have sparked the worst standoff between Russia and its former Cold War foes in two decades and unleashed sanctions on both sides. Violence surged a day after Putin and Poroshenko met in Minsk, Belarus. Putin hailed the talks as a step toward peace, though he said cease-fire terms weren’t discussed because Russia isn’t a party to the conflict.

“These geopolitical events tend to be transitory, where the market may drop over the short-term but then tends to recover pretty quickly,” Bob Landry, executive director and portfolio manager at San Antonio-based USAA Investment Management Co., said via phone. He helps manage $22.3 billion.

Light Volume

The U.S. stock market is seeing the slowest trading in at least six years as investors leave for vacation before Labor Day. Volume has been below 5 billion shares over the past eight days, the longest streak in data compiled by Bloomberg going back to 2008.

“There’s going to be light volume going into a holiday regardless, but now you have these geopolitical concerns that are playing into that as well,” Landry said.

The Chicago Board Options Exchange Volatility Index, the gauge of S&P options prices known as the VIX, rose for a second day, gaining 2.3 percent to 12.05. The gauge has lost 29 percent this month, poised for the biggest drop in two years.

Signet jumped 7.7 percent to $116.37, the highest ever, after reporting second-quarter earnings that beat analysts’ estimates and predicted same store sales growth in the third quarter.

Williams-Sonoma slid 12 percent to $65.93. The seller of cookware and home furnishings forecast third-quarter earnings of 58 cents to 63 cents a share. The average analyst projection in a Bloomberg survey was for 66 cents.

Retail Earnings

Abercrombie fell 4.8 percent to $41.87. The company is struggling to compete with fast-fashion companies such as Forever 21 and Hennes & Mauritz AB, which have won over teens with their ability to react to trends quickly.

Guess lost 8.8 percent to $23.38. Full-year adjusted profit will be $1.05 to $1.20 a share, lower than its May forecast of $1.40 to $1.60.

Whole Foods Market Inc. slid 1.6 percent to $39.19. Kurt Frederick, an analyst at Wedbush Securities Inc., initiated coverage of the stock with a neutral rating.

RadioShack Corp. shares jumped 31 percent, the third straight day of double-digit gains, to $1.43 on speculation that the company will get a rescue financing package that helps it stave off bankruptcy.

Repros Therapeutics jumped 19 percent to $21.58, the highest since January, after data released yesterday showed the company’s testosterone treatment Androxal was superior to AbbVie’s on market topical gel, AndroGel, in secondary hypogonadism.

--With assistance from Namitha Jagadeesh in London.