By Saumya Vaishampayan And Corrie Driebusch
U.S. stocks declined Tuesday, dragged down by biotechnology
stocks and a fall in Apple Inc.
The Dow Jones Industrial Average fell 46 points, or 0.3%, to
17994 and the S&P 500 declined 4.1 points, or 0.2%, to 2105.
The Nasdaq Composite lost 18 points, or 0.4%, to 5042.
"In a market that's been up huge, it's taking a breather," said
Ian Winer, head of equities trading at Wedbush Securities. Last
week, the Nasdaq Composite advanced to a record close for the first
time in 15 years, and on Friday, strong corporate results in the
technology sector catapulted both the Nasdaq and the S&P 500
into record territory.
Biotechnology stocks have outpaced broader market gains. Through
Friday's close, the Nasdaq Biotechnology index was up about 20% for
the year. The Nasdaq had rallied 7.5% through Friday's market
close, while the S&P 500 had added 2.9%.
On Tuesday the Nasdaq Biotechnology index fell 1.2%. So far this
week it is down 5.3%.
"(Biotech) has been trading on an incredible multiple and
everybody owns it," said Mr. Winer, adding that it is tough to
point to any fundamental changes in the sector and that the
declines in biotech stocks so far this week are "a normal
drawdown."
Earnings reports were also in focus for investors. On Tuesday,
41 companies in the S&P 500, more than 8% of the index, report
quarterly results.
Including results from 233 companies in the S&P 500,
first-quarter earnings are on track to fall 1.8% from a year
earlier. Earnings had been expected to decline 4.6% going into the
reporting season, pressured by a strong dollar and weak oil
prices.
"We've seen how much the dollar has rallied and it has been
widely discussed," said Jack Caffrey, equity portfolio manager at
J.P. Morgan Private Bank. "The fact that the strong dollar is
impacting results...is becoming a little less of a shock," he
added.
Instead, he said he's more focused on the outlook for margins
and how they will be affected by an eventual pickup in wage growth.
A decline in margins by itself doesn't cloud the outlook for
corporate profits, he said.
"To the extent that we may wind up with some labor cost
pressure, that's ultimately more money in the pocket of the
consumer," he said. That could boost consumer spending and lead to
higher revenue growth, he added.
The Federal Reserve's two-day policy meeting begins Tuesday.
While there is no press conference scheduled following the meeting
and economists don't expect major changes to the policy statement,
some traders said there are fewer buyers of stocks heading into the
meeting. Traders will be parsing over the policy statement, which
will be released on Wednesday, for any mentions of a stronger U.S.
dollar and global growth.
In earnings news Tuesday, Merck & Co. raised its earnings
guidance for the year as its first-quarter results declined less
than expected. Shares rose 4.7%, adding 18 points to the Dow.
Aetna Inc. boosted its profit outlook for 2015 again on Tuesday
as the health insurer reported better-than-expected earnings in the
latest quarter. Shares added 2.9%.
Apple Inc. said Monday it sold 61.2 million iPhones in the three
months ended March 28, up 40% from the year-ago period. Strong
iPhone demand boosted Apple's profit, which increased 33% to $13.57
billion in its fiscal second quarter. Still, shares fell 1.5%,
making it the worst performing stock in the Dow.
Declines in U.S. stocks followed losses in Europe, where
France's CAC 40 fell 2% and Germany's DAX dropped 1.7%.
Stocks in China fell sharply after the country's securities
regulator issued another warning to investors on the market's
risks. The Shanghai Composite Index fell 1.1%. After markets
closed, The Wall Street Journal reported that China's central bank
is planning to launch fresh easing measures targeting the country's
mounting local-government debt problems.
In commodity markets, gold futures rose 0.7% to $1211.90 an
ounce. Crude-oil futures added 0.7% to $57.39 a barrel.
Write to Saumya Vaishampayan at saumya.vaishampayan@wsj.com and
Corrie Driebusch at corrie.driebusch@wsj.com
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