Nasdaq Falls Below 4,000 on Biotech, Technology Weakness
The chief culprit is the healthcare sector, with biotech stocks slumping badly. The Dow Jones U.S. Biotechnology Index was down 7.74% for the year as of Friday’s close; the Dow Jones Medical Supplies Index is down 6.38%. The tech sector is down just 0.93% for the year to date, with electronic office equipment makers down 6.74% and computer hardware makers down 4.22% to lead the slide.
The big loser in biotechs is Prana Biotechnology Ltd. (NASDAQ: PRAN) down nearly 74% which has essentially imploded following a failed Phase II IMAGINE study of its Alzheimer drug. The second-biggest loss has come at Geron Corp. (NASDAQ: GERN), down 61% primarily due to a full clinical hold on its New Drug application for the company’s liver treatment.
The plunge in computer hardware stocks is led by 3D Systems Corp. (NYSE: DDD), down 48% so far in 2014. A short seller’s report hit the stock hard in late January, and recent insider selling has not helped the situation. The 3D printing stocks are clearly a momentum play, and last year’s upward momentum has been turned around so far this year.
Xerox Corp. (NYSE: XRX) is down 9% so far this year, the second-worst showing among the electronic office equipment stocks. The company was downgraded to Market Perform at BMO Capital Markets in late January and cut to Underperform at Barclays. The $6.4 billion acquisition of Affiliated Computer Systems in 2010 did not provide the expected boost to Xerox’s revenues or profits. A change at the top is clearly called for, but so far the board of directors has chosen to sit tight.
The about-face on momentum stocks has also been a big negative for the index. Investor hopes for growth have cooled, and the techs and biotechs that make up a large part of the Nasdaq Composite represent a large portion of momentum plays. Zynga Inc. (NASDAQ: ZNGA), for example, was up more than 50% year-to-date in early March and is now up just 7%. Facebook Inc. (NASDAQ: FB) was up over 30% in March and is now up just 7% as well.
With the beginning of the first-quarter earning season, investors appear to be shedding these momentum plays in advance of potentially poor results. Solid results from Yahoo! Inc. (NASDAQ: YHOO) on Tuesday and Google Inc. (NASDAQ: GOOG) on Wednesday may slow the rush for the exits. But investors don’t seem to be counting on it.