U.S. Stocks Extend Losses

By Dow Jones Business News, 

By Alexandra Scaggs

U.S. stocks extended losses in late trading, as home-building and bank shares weighed on broad benchmarks.

The Dow Jones Industrial Average declined 118 points, or 0.7%, to 16597. The S&P 500 index lost 11 points, or 0.6%, to 1886, and the Nasdaq Composite Index gave up 35 points, or 0.9%, to 4095.

Stocks retreated from record levels. The Dow closed Tuesday at an all-time high for the third straight session, while the S&P 500 posted back-to-back record closes. Small-cap stocks continued their recent declines, with the Russell 2000 Index down 1.6%, and 8.9% off its record high reached on March 4.

Home-builder shares helped drag the S&P 500's consumer-discretionary sector down 1.2%, for the biggest sector decline in the index. The iShares U.S. Home Construction exchange-traded fund shed 2.1% as executives from home-builder firms presented to shareholders at a conference in New York, and ahead of housing starts data on Friday. Recent data has indicated that growth in the U.S. housing market has cooled in 2014, amid an unusually icy winter.

"Every single metric we look at for the housing recovery has dropped," said Erin Gibbs, equity portfolio manager for S&P Capital IQ, which advises around $30 billion of assets. "I'm not investing a dollar until I see the April numbers."

Bank shares also fell, as yields on the 10-year U.S. Treasury note dropped to their lowest level since October, amid a global rally in government bond prices.

"The big topic is what's going on in yields right now," said David Lutz, head of exchange-traded-fund trading at Stifel Nicolaus & Co. For financial stocks, "lower interest rates are bad for their margins."

The S&P 500's financial sector lost 0.9%. Analysts said that a recent string of downbeat statements from bank executives on the outlook for fixed-income trading has also hurt the sector. Bank of America fell 1.4% after its chief executive said Wednesday there would be "ebbs and flows" in some fixed-income trading businesses, an important revenue engine for large U.S. banks. Dow components Goldman Sachs and J.P. Morgan Chase lost 0.2% and 0.5%, respectively.

Wednesday brought more declines for pricey small-cap stocks, many of which are so-called momentum stocks trading at high valuations. The Russell 2000 is trading at roughly 19 times its expected earnings for the next year, according to recent data from Bank of America Merrill Lynch. The large-cap S&P 500 is trading at 15.3 times its expected earnings.

"Expensive stocks have declined more than other types," said Lawrence Creatura, who manages $671 million for the Federated Clover Small-Cap Value Fund. "Now the job becomes one of determining whether these stocks are mispriced."

He said that some small-cap pricey stocks in the retail and technology sectors saw unwarranted price declines amid the broader selling, and his fund is snapping up shares of those companies.

In economic news, the producer-price index for April rose 0.6% on the month, versus expectations of a 0.2% increase. Excluding volatile food and energy components, core PPI grew 0.3%, topping forecasts of a 0.2% rise.

The yield on the 10-year Treasury note slipped to 2.544% from 2.618% late Tuesday, its lowest level since Oct. 31. Treasury prices rose amid a global rally, on heightened speculation that the European Central Bank could introduce stimulus measures next month.

The dollar fell against the yen.

Hopes of more ECB stimulus didn't boost stock prices in Europe, however. The Stoxx Europe 600 slipped 0.1%, after closing Tuesday at the highest level in more than six years.

Crude-oil futures advanced 0.7% to $102.37 a barrel, while gold futures gained 0.8% to $1,305.70 a troy ounce.

Asian markets were mostly lower, with Japan's Nikkei Stock Average down 0.1% and China's Shanghai Composite down 0.1%.

In corporate news, International Business Machines notched the biggest decline in the Dow industrials, shedding 1.9% as company executives presented to shareholders.

Sears Holdings fell 3.7% after the company said it was exploring a possible sale of its 51% stake in Sears Canada.

The U.S.-listed shares of Japan's Sony slumped 7% after the company said it would record an annual loss, citing problems in its consumer-electronics division.

Fossil Group dropped 9.1% after topping first-quarter earnings estimates, but providing a second-quarter outlook that was well below analyst projections.

Write to Alexandra Scaggs at alexandra.scaggs@wsj.com

  (END) Dow Jones Newswires
  Copyright (c) 2014 Dow Jones & Company, Inc.

This article appears in: ETFs , US Markets , Bonds , Economy

Referenced Stocks: JPM , SHLD

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