Wednesday, March 25, 2015

U.S. Stocks Fall on Downbeat Economic Data

U.S. Stocks Fall on Downbeat Economic Data

Orders for U.S. durable goods dropped 1.4% in February

DEVELOPING STORY:
*U.S. Stocks Close Sharply Lower
*DJIA Drops 292.60 (1.6%) To 17718.54; Microsoft, Intel Fall Most
*S&P 500 Falls 30.45 (1.5%) To 2061.05; IT Sector Biggest Decliner
*Nasdaq Composite Tumbles 118.21 (2.4%) To 4876.52
MORE TO FOLLOW
Earlier:
U.S. stocks fell for the third session in a row on Wednesday, further pulling back from records as downbeat economic data raised concerns about U.S. growth.
The Dow Jones Industrial Average declined 254 points, or 1.4%, to 17757. The S&P 500 fell 26 points, or 1.2%, to 2066, and the Nasdaq Composite lost 107 points, or 2.1%, to 4889.
Traders said the surprise decline in durable goods orders set the negative tone for trading, which was dominated by short-term investors. Losses deepened around midday, led by declines in biotechnology and semiconductor stocks. The iShares Nasdaq Biotechnology exchange-traded fund fell 3.6% and the Market Vectors Semiconductor ETF slumped 4.4%. Biotech stocks have posted strong gains this year, with the ETF up 13%.
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Investors snapped up beaten-up energy stocks as the price of crude oil continued to gain, traders said. Crude-oil futures rallied 3.6% to $49.21 a barrel, gaining for the fourth day in a row. Energy stocks in the S&P 500 rose 1.5%, the only sector to post gains.
“The healthy thing that we are seeing is rotations,” said Darren Wolfberg, head of cash equity trading at BNP Paribas. Earlier, “a lot of guys sold energy and put money in semiconductors and biotech, which had good earnings trajectories,” said Mr. Wolfberg. Now “as crude is turning [higher], people are putting money back into some of these energy names,” he added.
Wednesday’s declines dragged the Dow back into negative territory for the year, down 0.4%. The blue-chip index is 2.9% below its record close of 18288.63.
Orders for durable goods fell 1.4% in February from a month earlier, the latest in a series of economic reports to suggest the economy slowed sharply at the start of the year. Economists surveyed by The Wall Street Journal expected orders to rise 0.2%. Durable goods orders for January were weaker than previously reported and a key measure of business investment continued to decline in February. Weak economic reports tend to dim the outlook for corporate profits and stock prices.
Orders for durable goods fell 1.4% in February. Plus three stocks to watch. Photo: Getty
“The concern about the durable goods orders being down is that the economy is slowing and consumers are spending less,” said Greg Peterson, director of investment research at Ballentine Partners. He added that he doesn’t put too much weight on one report and noted that severe winter weather could have pressured the data.
U.S. growth concerns were evident by heavier selling in small-cap stocks. Those companies’ profits are more closely linked to the health of the U.S. economy than the profits of their larger peers.
The Russell 2000, the benchmark for small-cap stocks, fell 2.1%.
The heightened focus on economic data comes as investors continue to bet on when the Federal Reserve will raise short-term rates. The Fed opened the door to such a move at its latest meeting, but emphasized its policy remains data dependent. And as the debate at the Fed picks up over when to make a move on rates, investors will be more sensitive to data releases, said Erik Wytenus, global investment specialist at J.P. Morgan Private Bank.
“The market is going to be hemming and hawing over each piece of data,” said Mr. Wytenus, adding that he expects stocks to gain this year.
Matt Peron, head of global equity at Northern Trust, which manages $934 billion, said stocks tend to perform well going into and immediately after increases in rates. “Equities generated positive returns in four of the five tightening cycles between 1986 and 2004,” he said.
Mr. Peron said he’s expecting more volatility in stocks as the Fed prepares to raise rates and wouldn’t be surprised by a correction in stocks.
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