By William L. Watts, MarketWatch
NEW YORK (MarketWatch) -- U.S. stocks trimmed or erased strong
earlier gains, with the Nasdaq Composite slipping into negative
territory after equities initially found support on Citigroup
Inc.'s quarterly results and an unexpectedly strong jump in retail
sales.
The Nasdaq Composite (RIXF), which had led the initial charge
higher, came back under pressure to fall 11.19 points, or 0.3%, to
3,988.54. The index led a stock selloff last week, with formerly
highflying momentum stocks in the tech and biotech sectors slumping
hard.
The Dow Jones Industrial Average (DJI) saw triple-digit gains in
earlier activity, but was up just 44.93 points, or 0.3%, to
16,071.68 in recent trade. The S&P 500 (SPX) held on to a gain
of 2.40 points, or 0.1%, at 1,818.09. Read: MarketWatch's stock
market live blog.
The softer tone in the afternoon comes as the Nasdaq and the
S&P 500 both posted their biggest weekly percentage declines
since mid-2012 last week. So-called growth stocks have borne the
brunt of the weakness, undercut by growing nervousness as earnings
season picks up steam.
Bulls said further weakness may be on the horizon, but that a
pullback has been overdue.
"There's no telling how long the current bout of volatility will
last, or how deep the pullback will go. But if history is any
guide, markets may overshoot on the way down," said Jerry Webman,
chief economist at Oppenheimer Funds, in a note.
With no 2008-style systemic crises or wild, 2000-style valuation
concerns and subsequent recessions currently on the horizon, Webman
said that a significant selloff is likely to be "relatively
contained--and prove to have been a good long-term buying
opportunity."
A positive tone had been set ahead of the opening bell as
stock-index futures extended gains after data showed retail sales
jumped 1.1% in March, marking the biggest rise since September 2012
and topping forecasts for a gain of 0.9%. February sales were
raised to show a 0.7% gain from an initial estimate of 0.3%.
(Read more: Real news in retail sales report is absence of bad
news:
http://www.marketwatch.com/story/real-news-in-retail-sales-report-is-absence-of-bad-news-2014-04-14.)
"Significant strength in consumer spending last month provides a
strong challenge to the bearish tone of late -- not that much of
the bout of selling was driven by concern for the health of the
economy," said Andrew Wilkinson, chief market analyst at
Interactive Brokers in Greenwich, Conn.
The data cheered investors as it offered some reassurance that
soft economic data earlier this year was attributable to extreme
winter weather.
"The amelioration of the chilly winter possibly had much to do
with the latest reading, but the snapback in dollars spent was
tremendous," Wilkinson said, in a note.
"The winter slumber is over and with confidence rising, the
consumer could lead the way, if only wage gains improve," said Joel
Naroff, economist at Naroff Economic Advisors in Holland, Pa.
Stocks paid scant attention to data that showed business
inventories rose 0.4% in February, just shy of expectations for a
0.5% increase.
Citigroup (C) shares rose 3.4% after the bank's first-quarter
results easily topped Wall Street forecasts. Citigroup reported a
3.5% rise in profit, boosted by lower expenses and provisions for
soured loans, even as revenue fell. See: Citigroup's stock is
cheap, but should you buy it?
U.S. stocks were shellacked last week, with the S&P 500 and
Nasdaq both seeing their biggest weekly losses since mid-2012,
while the Dow saw its biggest weekly fall since mid-March.
The relatively upbeat results from Citigroup stood in contrast
to disappointing results Friday from J.P. Morgan Chase & Co.
(JPM), which contributed to the Friday selloff. Analysts said
earnings and, perhaps more important, sales results continue to
hold the key to near-term direction, particularly in the tech
sector, which has been hardest hit as investors grow worried that
valuations have been stretched too far.
"Weak sales growth is nothing new, but now that the market
appears to believe that valuations are looking rich, investors are
starting to take notice. If companies can't beat sales expectations
in an environment of low interest rates, when can they?" wrote
Kathleen Brooks, research director at Forex.com in London.
"Johnson & Johnson (JNJ), Coca-Cola (KO), Bank of America
(BAC) and Google (GOOG) are some of the blue-chip highlights to
watch out for this week. If they follow J.P. Morgan and disappoint
expectations we could see further downside in the markets" ahead of
the Easter weekend, she said in a note. See: Google, Intel, IBM
outlooks to trump earnings results.
Elsewhere, shares of Herbalife Ltd. (HLF) rose 3.8%. Shares had
tumbled at the end of last week on news reports the company is the
subject of a criminal investigation by U.S. authorities. The
nutrition-supplement firm said Friday it wasn't aware of a
probe.
Shares of Edwards Lifesciences Corp. (EW) rose 11%. The company
said late Friday it won a preliminary injunction limiting the sale
of Medtronic Inc.'s (MDT) CoreValve system, which had been found by
a federal jury to infringe on an Edwards patent. Medtronic shares
were down 2.8%.
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