By Dan Strumpf
U.S. stocks took a hit Wednesday after data showed a sharp
slowdown in the pace of U.S. economic growth in the first quarter,
suggesting a deeper early-year slowdown than previously
anticipated.
The Dow Jones Industrial Average fell 74.61 points, or 0.4%, to
18035.53. The S&P 500 declined 7.91 points, or 0.4%, to
2106.85. The Nasdaq Composite Index shed 31.78 points, or 0.6%, to
5023.64.
Stocks kicked off the session lower and held on to losses
through the afternoon following a report from the Commerce
Department that showed the U.S. economy grew a paltry 0.2% in the
first quarter, well below expectations.
The economy grew at a much faster 2.2% pace during the last
three months of 2014. Wednesday's reading is the latest indicator
suggesting a marked slowdown in the U.S. economy early in the year,
taking place against the backdrop of a tepid first-quarter earnings
season.
The report sent the dollar sliding against other major
currencies and knocked European markets sharply lower. Germany's
DAX lost 3.2%, while France's CAC 40 lost 2.6% and the Stoxx Europe
600 index shed 2.2%. The euro gained 1.3% to $1.1118.
"The economic data needs to improve," said David Seaburg, head
of sales trading at Cowen and Co. in New York. "It's just not where
it needs to be ... it's scary."
Though major U.S. stock benchmarks have advanced in recent
weeks, they have done so at an uneven pace. A weak first-quarter
earnings season, coupled with slowing economic growth and
uncertainty over the Federal Reserve's timeline for interest-rate
increases, have made for a rockier few months for stocks. The
S&P 500 is up 1.9% so far in April.
The Fed's latest policy statement, released Wednesday, offered
investors little additional clarity on its course of rate
increases. The Fed attributed the recent economic slowdown to
"transitory factors," but offered little in the way of additional
guidance. Chairwoman Janet Yellen did not give her usual news
conference, and stocks held losses following the afternoon
statement.
"It's a nonevent," said Tom Carter, managing director at
brokerage firm Jones Trading, who added that the sharp selloff in
European markets attracted more attention from investors. "Europe's
the bigger story."
Treasury bonds lost ground. U.S. bond prices had sunk before the
Fed's statement and the yield on the 10-year note hit a six-week
high of 2.08%, along with a broad selloff in government debt
markets in Europe.
Higher-yielding stocks declined alongside the selloff in bonds
Utilities stocks in the S&P 500 fell 0.3%. The $27-billion
Vanguard Real Estate Investment Trust Index Fund lost 2%.
U.S. economic data has been weak of late, contributing to weaker
quarterly results and a rockier stock market this year, said Kevin
Kelly, chief investment officer at Recon Capital Partners, which
manages about $200 million.
"The economic numbers certainly have been damaged, and that
story that we're doing so well is not as intact," Mr. Kelly said.
"You can see that in the market action this year, and you can see
that in the earnings."
Mr. Kelly said he remained invested in shares of large, dominant
technology companies. He said he boosted his stake in Google Inc.
earlier this year.
The latest round of earnings reports, meanwhile, were a mixed
bag Wednesday. Analysts now expect first-quarter earnings among
S&P 500 companies to decline 1.7%, including the 277 companies
that have so far reported results, according to FactSet. If
confirmed, that would mark the biggest decline in earnings since
the third quarter of 2009, though it's an improvement from the
expected earnings drop of 4.7% forecast in late March.
Humana Inc. shares dropped 7.2% after the company reported
earnings that fell below analysts' expectations on an operating
basis. Anthem Inc. posted first-quarter revenue that was lower than
analyst forecasts, pushing shares down 2%.
Shares of Wynn Resorts Ltd. fell 17% after the casino operator
said late Tuesday that it swung to a quarterly loss.
Shares of Akamai Technologies Inc. fell 1.2% after the
cloud-computing service firm reported first-quarter results that
fell short of its own forecast.
Starwood Hotels & Resorts Worldwide shares gained 8.3% after
the company said it hired investment bank Lazard to explore
strategic alternatives, a move that could put the company up for
sale. The hotel operator also reported lower first-quarter
earnings.
Shares of Twitter fell 8.9%, extending Tuesday's decline
following the early release of the company's disappointing
first-quarter results.
Oil prices jumped 2.7% to $58.58 a barrel.
Write to Dan Strumpf at daniel.strumpf@wsj.com
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