By Dan Strumpf
Stocks turned negative in afternoon trading, as investors looked past a blockbuster drug buyout offer and continued to punish once-highflying companies in the technology sector.
The technology-heavy Nasdaq Composite Index led the decliners, falling 58 points, or 1.5%, to 4017 in early afternoon trading. The Dow Jones Industrial Average fell 49 points, or 0.3%, to 16313, reversing an early-session gain of as much as 139 points, or 0.8%. The S&P 500 index declined 12 points, or 0.7%, to 1851.
Beaten-down companies in the biotechnology, social media and Internet sectors sustained some of the biggest losses Monday. The Nasdaq Biotechnology Index was off 2.9%. Shares of Facebook dropped 4.5%, Netflix retreated 6.4% and Twitter fell 3.9%.
Traders were unable to pinpoint a single reason behind the decline, saying the pullback appeared to be driven by investors' continued distaste toward riskier, higher-priced areas of the market. High-growth companies were among the biggest gainers in last year's rally, but have sustained heavy declines recently as investors have had given second thoughts to their sky-high price tags and sought out better-priced areas of the market.
"It appears to be part of the broader drawdown and sector reallocation going on, and it's tough to fight," said Brian Fenske, who helps trade media, telecommunication and technology companies at brokerage ITG. "They all get lumped in together and they're trading like one big stock, which I hoped wouldn't be the case...It has a lot of hallmarks of a flight-to-quality, flight-to-safety kind of day."
The slide marked an extension of a recent slid in stocks. On Friday, the Dow shed 140 points and the S&P 500 slid 0.8%.
Larger stocks and more defensive corners of the market held up better Monday. U.S.-listed shares of the U.K.'s AstraZeneca surged 9.6% after Dow-component Pfizer confirmed Monday that it made a renewed approach regarding a buyout valued at nearly $100 billion. Pfizer's stock rose 2.6%, outpacing the other 29 Dow components.
Jim Paulsen, chief investment officer at Wells Capital Management, said rising appetite for deals is a sign of broader optimism about the economy and has helped prop up the stock market in the face of sluggish corporate earnings and economic news.
"It says the animal spirits are starting to creep back in," said Mr. Paulsen, whose firm manages $357 billion, and who has been recommending stocks poised to benefit from expanding economic growth. "You don't buy something if you think it's going down. There was a complete absence of [M&A activity] for several years after the recession."
Earnings also continue to beat expectations. With 49% of the S&P 500 having reported first-quarter results through early Monday morning, earnings per share are expected to rise 0.4% from year-earlier levels, according to FactSet. Analysts had expected a 1.2% decline at the end of March. Revenue is expected to grow 2.4% from last year, according to FactSet.
Investors, meanwhile, are bracing for a raft of economic data this week. Pending home sales for March rose 3.4%, outpacing expectations for a rise of 1%. On Wednesday, the Federal Reserve will release its closely watched policy statement, while the monthly jobs report for April will be released Friday.
Elsewhere in the market, Bank of America shed 6.8% after the banking giant said it was suspending its previously announced plans to raise its dividend and buy back stock. The bank revealed it discovered an error in the way it calculates its capital levels and said it would renew its financial accounts and plans to request a capital action plan.
The yield on the 10-year Treasury note inched up to 2.673% from 2.666% late Friday.
Crude-oil futures fell 0.1% to $100.53 a barrel after falling 1.3% on Friday. Gold futures slipped 0.6% to $1293.60 an ounce. The dollar gained ground against the yen but slipped against the euro.
European markets were higher, with the Stoxx Europe 600 advancing 0.2%, boosted by merger news. Germany's DAX 30 index gained 0.5%, France's CAC 40 tacked on 0.3% and the U.K.'s FTSE 100 added 0.2%.
Monday's rise helped reverse a downdraft on Friday, when investors continued to unwind last year's winning bids on fast-growing companies in the Internet and biotechnology sectors. Also rattling investors on Friday were escalating tensions between Ukraine and Russia.
Kent Engelke, chief economic strategist at Capitol Securities Management, said investors appear to be rewarding merger-and-acquisition activity and shifting their focus away from geopolitical issues.
"The easiest way to expand your footprint is M&A. Now it's starting to accelerate," Mr. Engelke said. "The market is rewarding this desire to expand your footprint and increase market share."
In addition to the AstraZeneca news, Germany's Siemens proposed a counter offer to a plan by France's Alstom to sell its energy assets to General Electric., The U.S.-listed shares of Siemens fell 3.1 %. General Electric slipped 0.2%. Domestically listed shares of Alstom were suspended Friday.
Asian markets fell. China's Shanghai Composite lost 1.6% to the lowest level in more than five weeks on share supply concerns, after China's securities regulator announced a resumption of initial public offerings late Friday. Japan's Nikkei Stock Average shed 1%.
Write to Dan Strumpf at email@example.com