NEW YORK - 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 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 more than $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 selloff 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 percent and 15 percent, respectively.
Investors say it’s reassuring to see some of the air come out of these speculative technology stocks. Netflix 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 has never 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 the rebuke.
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 the 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.
Business, Pages 26 on 03/28/2014