S&P 500 Caps Worst Week in Two Years as Tech Shares Drop

By Callie Bost

Oct. 10 (Bloomberg) -- Marc Faber, publisher of the Gloom, Boom & Doom report, talks about global stocks, the economy and gold prices. Faber speaks with Matt Miller, Scarlet Fu and Olivia Sterns on Bloomberg Television's "In the Loop." Bloomberg View columnist Barry Ritholtz also speaks. (Ritholtz is a Bloomberg View columnist. The opinions expressed are his own. Source: Bloomberg)

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The Standard & Poor’s 500 Index (SPX) posted the biggest weekly drop in two years as concern about chipmaker earnings fueled a rout across the technology industry.
The Dow Jones Industrial Average (INDU) erased gains for the year as Intel Corp., Microsoft Corp. and Cisco Systems Inc. fell more than 3.5 percent. Microchip Technology Inc. tumbled 12 percent said quarterly revenue was crimped by a decline in China sales and warned of an industry correction. Juniper Networks Inc. sank 9.1 percent after
reporting preliminary results that missed its own forecast.
The S&P 500 lost 1.1 percent to 1,906.13 as of 4 p.m. in New York. The index fell 3.1 percent for the week, the biggest drop since May 2012. The Nasdaq Composite Index sank 2.3 percent. The Dow average lost 115.15 points, or 0.7 percent, to 16,544.10.

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“It’s been an emotional roller coaster,” Mark Freeman, who oversees $20.1 billion as chief investment officer at Westwood Holdings Group Inc., said by phone. “It’s really about investors’ degree of confidence on growth outside of the U.S. and that’s what has been called into question.”
The Chicago Board Options Exchange Volatility Index (VIX) jumped above 20 for the first time since February, surging 46 percent for the week. The S&P 500 has moved more than 1 percent for the past four days.

Photographer: Spencer Platt/Getty Images

Traders work on the floor of the New York Stock Exchangeon Oct. 10, 2014.

Volume Jumps

About 9.2 billion shares changed hands on U.S. exchanges, the most in three weeks, according to data compiled by Bloomberg. For the week, the average was 7.9 billion, the most since 2011.
Global equities have lost $3.5 trillion in value since reaching a record last month. European Central Bank President Mario Draghi clashed with Germany’s finance minister yesterday over the steps needed to revive growth in the euro area, while Federal Reserve officials have said the U.S. economy may be at risk from a global slowdown.
Stocks continued to slip after 4 p.m. after the close of equity exchanges, with S&P 500 December futures falling as low as 1,895. The contract closed at 1,897.4 on Aug. 7 and reached an intraday level of 1,892.9 that day, a key level for technical analysts.
The S&P 500 has fallen for the past three weeks, the longest run since January. It’s down 5.2 percent from a record on Sept. 18, trimming its gain for the year to about 3 percent.

Industry Correction

Chipmakers had the worst losses today, with the Philadelphia Semiconductor Index falling almost 7 percent. Microchip Technology sank 12 percent to $39.96 after reporting preliminary quarterly sales that trailed forecasts. The company makes semiconductors used in products ranging from home appliances to computer network hardware to cars, making its earnings a broad indicator of demand across the industry.

Photographer: Spencer Platt/Getty Images

The Nasdaq stock market in New York City.

“We believe that another industry correction has begun, and that this correction will be seen more broadly across the industry in the near future,” Steve Sanghi, Microchip’s chief executive officer, said in a statement.
Juniper Networks dropped 9.1 percent to $19.04. Revenue is projected to be $1.11 billion to $1.12 billion, less than Juniper’s own estimate of $1.15 billion to $1.2 billion, the company said.
The International Monetary Fund cut its forecast for global growth this week and said the euro area faces the risk of a recession. European Central Bank President Mario Draghi pledged at the IMF’s annual meeting to loosen monetary policy more if needed. That contrasted with German Finance Minister Wolfgang Schaeuble, who warned against U.S.-style quantitative easing and urged continued budgetary discipline.

Earnings Season

Federal Reserve policy makers said in minutes of their last meeting that slowing global growth and the stronger greenback posed potential risks to the U.S. outlook.
Investors are also watching earnings reports after Alcoa Inc. unofficially kicked off the results season this week. JPMorgan Chase & Co., Citigroup Inc., BlackRock Inc. and Google Inc. are among S&P 500 members posting results next week. Profit for companies in the index probably rose 4.8 percent and sales gained 4.2 percent in the third quarter, analysts projected.
“It’s healthy to have corrections along the way because it does reduce valuations, it does shake out people that don’t have fundamental convictions,” Jim McDonald, chief investment strategist at Chicago-based Northern Trust Corp., said by phone. His firm manages about $924 billion. “A long overdue correction can help the bull market have a longer duration.”