Tech companies, Citigroup tug U.S. stocks lower
NEW YORK - It was a bad day to be an investor in Citigroup or tech stocks.
U.S. stock indexes edged lower for a second day Thursday as investors continued to retreat from technology stocks. The technology-heavy Nasdaq composite index closed at its lowest level in six weeks.
Bank stocks were also in focus. Citigroup fell 5 percent after the Federal Reserve denied the bank's plan to raise its dividend and buy back more stock. Most other major banks won approval to raise their dividends.
The Standard & Poor's 500 index lost 3.52 points, or 0.2 percent, to 1,849.04 and the Nasdaq dropped 22.35 points, or 0.5 percent, to 4,151.23.
The Dow Jones industrial average fell a modest 4.76 points, or less than 0.1 percent, to end at 16,264.23. The blue-chip index benefited from a gain in Exxon Mobil, which rose $1.54, or 1.6 percent, to $96.24 as the price of oil increased 1 percent to just over $101 a barrel.
Once again, the high-flying technology stocks that soared in 2013 were among the hardest hit. Tesla Motors fell nearly 3 percent, Netflix lost 2.2 percent and Google fell 1.6 percent.
The sell-off continues what has already been a tough month for technology stocks. Netflix is down 18 percent this month, and Twitter and Tesla have fallen 16 and 15 percent, respectively.
Investors say it's reassuring to see some of the air come out of these speculative technology stocks. Netflix is still is trading at 90 times its expected 2014 earnings; the average for companies in the S&P 500 index is 17. Tesla is worth 119 times its expected earnings and Twitter, which hasn't even made a profit, is trading at more than 3,000 times what analysts expect the company to earn this year.
Most investors believe that while Netflix, Tesla and Facebook have bright futures, the stocks may have gotten ahead of themselves in recent months.
"The real story in the market is this valuation correction and risk-off trade," said Steve Massocca, a fund manager for the Wedbush Hedged Dividend Fund. "The more speculative areas have seen money come out of them in a hurry."
Citigroup was the second-biggest decliner in the S&P 500 after the Federal Reserve denied the bank's plan to raise its dividend and buy back more stock. The bank was one of only five to have plans rejected by the Fed. Citi was the only large U.S.-based commercial bank to face a rebuke from the Fed.
Investors had been bidding up the big banks' stock prices in the weeks heading into the announcement, in anticipation that the Fed would allow the banks, five years after the financial crisis, to return more money to investors. The nation's biggest banks have proposed $22.79 billion in dividends this year, a 23 percent increase from a year ago, according to data provided by Thomson Reuters.
"While there's going to be some winners and losers, these 'stress test' results will be an overall positive for the banks because it removes some of uncertainty in the sector," said Andres Garcia-Amaya, a global market strategist for J.P. Morgan Funds.
"From a long-term perspective, they're all in a great place competitively," Massocca said.
As they have often done in recent weeks, investors looked past the latest positive reports on the U.S. economy.
The government estimated that the U.S. economy expanded at a 2.6 percent rate between October and December, slightly better than previously thought. Consumer spending rose at the fastest pace in three years. The government also said the number of people seeking U.S. unemployment benefits fell 10,000 last week to 311,000, the lowest since late November. Both reports were better than economists were expecting.
Economic data has had less of an impact on the stock market recently as many investors assume that the unusually harsh winter weather this year has skewed the data. Extremely cold and stormy weather is widely believed to have suppressed sales, hiring, construction and other potential growth in the economy in January and February. At the same time, many investors attribute improvements in economic indicators this month to a temporary bounce because of pent-up demand.
"We are not likely to get 'pure' data until the summer," Garcia-Amaya said. "Investors can't have it both ways, complaining that any bad data was impacted by the weather while at the same time saying any better-than-expected data was not impacted by the weather. We'll need to take the good and the bad with a grain of salt for a couple more months."
In company news:
• GameStop fell $1.57, or 4 percent, to $37.33. The video game retail chain reported higher fourth-quarter earnings, thanks to the recent debut of Microsoft's Xbox One and Sony's PlayStation 4, but its earnings missed estimates. The company also announced it would close 2 percent of its stores.
• King Entertainment, producer of the "Candy Crush Saga" video game, continued to slide a day after flopping in its stock market debut. The stock fell 51 cents, or 2.7 percent, to $18.49. It plunged 16 percent the day before.