Slump in biotech and technology stocks sent benchmarks to negative territory for third straight sessions on Wednesday. These sectors witnessed intense selling pressure as investors remained concerned that strength in the U.S. dollar will negatively impact earnings growth in upcoming quarters. However, the dollar weakened yesterday against major currencies following release of dismal durable orders data. The Nasdaq witnessed its biggest one-day drop since Apr 2014, while the Dow and S&P 500 suffered their steepest drops in two weeks.
For a look at the issues currently facing the markets, make sure to read today’s Ahead of Wall Street article
The Dow Jones Industrial Average (DJI) declined 1.6%, or 292.60 points, to close at 17,718.54. The Standard & Poor’s 500 (S&P 500) decreased almost 1.5% to 2,061.05. The tech-laden Nasdaq Composite Index closed at 4,876.52; losing 2.4%. The fear-gauge CBOE Volatility Index (VIX) gained 13.4% to settle at 15.44. A total of about 3.52 billion shares were traded on NYSE on Wednesday. Decliners outpaced advancing stocks on the NYSE. For 71% stocks that declined, 26% advanced.
Although the dollar weakened against major currencies on Wednesday, the overall strength in the dollar had a negative impact on investor confidence. It is being speculated that stronger dollar will hamper earnings growth for multinationals in the coming quarter. These concerns over the strengthening dollar resulted in selling of biotech and technology stocks.
On Wednesday, the Nasdaq was dragged down by a 4.1% drop in iShares Nasdaq Biotechnology (IBB). However, the index registered a gain of more than 12% so far this year. Key biotech stocks including Gilead Sciences Inc. (GILD – Analyst Report), Alexion Pharmaceuticals, Inc. (ALXN – Analyst Report), Regeneron Pharmaceuticals, Inc. (REGN – Analyst Report) and Biogen Idec Inc. (BIIB – Analyst Report) declined 1.5%, 4.3%, 4.2% and 4.7%, respectively.
Moreover, concerns over earnings growth also led to the sell-off in technology stocks yesterday. Technology Select Sector SPDR (XLK) dropped 2.6% and was the worst performer among the S&P 500 sectors on Wednesday. Key technology stocks including Microsoft Corporation (MSFT – Analyst Report), Facebook, Inc. (FB – Analyst Report), Apple Inc. (AAPL – Analyst Report) and Google Inc. (GOOGL – Analyst Report) decreased 3.4%, 2.8%, 2.6% and 1.8%, respectively.
Meanwhile, the U.S. Department of Commerce reported that new orders for manufactured durable goods plunged 1.4% to $231.3 billion in February, contrary to the consensus estimate of a 0.2% rise. Unfavorable global demand and stronger dollar were seen as the main reasons behind this discouraging durable orders data. Market participants speculated that this negative data may have a negative impact on the GDP growth.
Discouraging durable orders data led to a decline in the dollar value against major currencies yesterday. The dollar index, which evaluates the performance of the U.S. dollar against a basket of major currencies, declined nearly 0.3%. The euro was up almost 0.4% against dollar to $1.0963 and the yen rose about 0.2% against a dollar.
However, weaker dollar had a positive impact on the oil prices on Wednesday. The prices of WTI crude oil and Brent crude oil jumped 3.5% and 2.4% to $49.21 per barrel and $56.48 a barrel, respectively. Gains in oil prices boosted the Energy Select Sector SPDR (XLE) yesterday. The sector gained 1.3% and was the only gainer among the S&P 500 sectors. Key energy stocks including Chevron Corporation (CVX – Analyst Report), Schlumberger Limited (SLB – Analyst Report), Halliburton Company (HAL) and Exxon Mobil Corporation (XOM – Analyst Report) rose 1.4%, 1.8%, 2.2% and 0.4%, respectively.
Separately, shares of Kraft Foods Group, Inc. (KRFT – Analyst Report) surged 35.6% after announcing that privately-owned H.J. Heinz Co will acquire the company in a deal, roughly valued at $36 billion. It was reported that the deal will be managed by Warren Buffett’s Berkshire Hathaway (BRK.B) and 3G Capital Partners L.P., both of whom will invest a total of $10 billion in the new business. According to the agreement, shareholders will receive 49% of the new company’s stock, as well as a special cash dividend of $16.50 a share that represents 27% of Kraft’s closing price on Tuesday.
Read more –