MarketView for March 26

Summary

The major equity indexes were lower again on Wednesday, led by losses in the technology and materials sectors, as geopolitical concerns rose after the United States and the European Union agreed to work together on tougher sanctions on Russia.

Trading remained choppy with share prices mostly positive in the morning after economic data pointed to improving conditions. However, the indexes reversed course in the afternoon as technology stocks turned sharply lower.

Among those chalking up negative numbers, Facebook was one of the largest decliners a day after the social networking company said it will acquire two-year-old Oculus VR, a manufacturer of virtual-reality glasses for gaming, for $2 billion. Facebook shares ended down 6.9 percent at $60.39.

The United States and the European Union agreed to work together to prepare possible tougher economic sanctions in response to Russia's behavior in Ukraine. The sanctions could possibly include the energy sector.

President Barack Obama said after a summit with top EU officials that Russian President Vladimir Putin had miscalculated if he thought he could divide the West or count on its indifference over his annexation of Crimea.

A sharp drop in the stock of King Digital Entertainment, the creator of the wildly popular "Candy Crush Saga" game, also soured investor sentiment. King's stock fell 15.6 percent to close at $19 in its trading debut on Wednesday after the initial public offering valued the company at about $6 billion. King was the most actively traded stock on the New York Stock Exchange.

The CBOE Volatility Index rose 6.5 percent to close at 14.93. The VIX usually moves inversely to the S&P 500.

Biotech stocks, which have sold off sharply in recent sessions, extended their losses. The Nasdaq biotechnology index fell 1.9 percent to end the day at 2,455.84.

The S&P materials sector index fell 1.4 percent and ranked as the largest decliner among 10 S&P sector indexes. The only positive sector was the S&P healthcare sector index, up just 0.1 percent for the day.

Going against the day's downward trend, DirectTV rose 5.7 percent to end at $77.34 and Dish Network was up 6.3 percent to close at $62.09. Dish Chief Executive Officer Charlie Ergen recently contacted DirecTV CEO Mike White to discuss a possible tie-up, according to Bloomberg.

After the bell, the Fed objected to plans by Citigroup (C.N) and four other banks to return capital to shareholders, saying it had uncovered deficiencies during an annual test of their financial robustness. Citigroup fell more than 5 percent in after-hours trading following the news. The shares had ended the regular session at $50.16, down 0.3 percent.

In the latest look at the economy, orders for durable goods rose more than expected in February, ending two straight months of declines. Another report showed private-sector economic activity accelerated in March at a faster clip than in February as the services sector picked up; according to financial data firm Markit's preliminary composite Purchasing Managers Index.

Approximately 7.1 billion shares changed hands on the major equity exchanges, a number that was slightly below the 6.9 billion share average so far this month, according to data from BATS Global Markets.

Durable Goods Orders Rise

According to a report released by the Commerce Department on Wednesday morning, durable goods orders were higher during February as shipments ended two straight months of declines, thereby adding additional support to the hypothesis that the economy is shaking off its winter gloom. According to the Department durable goods orders rose 2.2 percent as demand increased almost across the board.

Orders for durable goods, ranging from toasters to aircraft and supposedly last three years or longer, fell 1.3 percent during January.

The report joined other data such as industrial production, retail sales and employment in suggesting a pick-up in economic growth after an unusually harsh winter chilled activity at the end of 2013 and the beginning of this year.

First-quarter growth is expected to have slowed from the fourth-quarter's annualized 2.4 percent rate. Growth has also been held back as businesses work through a pile of unsold goods that was accumulated in the second half of 2013.

The durable goods report showed overall shipments increased 0.9 percent in February, after two straight months of declines. Unfilled orders also increased after being flat in January.

However, there was a slight wrinkle in the otherwise fairly upbeat report. Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, unexpectedly fell 1.3 percent in February after rising by a revised 0.8 percent the prior month. The consensus had been for orders for these so-called core capital goods to increase 0.7 percent in February after a previously-reported 1.5 percent advance in January.

Shipments of the core capital goods, however, rose 0.5 percent last month. Shipments of these goods are used to calculate equipment spending in the government's GDP measurement. They had declined 1.4 percent in January.

Last month, orders for transportation equipment increased 6.9 percent as bookings for automobiles recorded their largest gain in a year. Transportation orders had declined 6.2 percent in January.

There were also increases in orders for primary metals, fabricated metal products and computers and electronic products. Orders for machinery fell for a second straight month as did bookings for electrical equipment, appliances and components.

Service Sector Growth Accelerates

Economic growth in the private sector accelerated during March at a faster clip than in February due in part to an increase within the services sector, according to a "flash" composite Purchasing Managers Index (PMI) report released on Wednesday, by the financial data firm Markit.

Markit said its PMI report, a weighted average of its manufacturing and services indexes, hit 55.8 in March, up from 54.1 in February. The preliminary reading on the services sector rose to 55.5 this month from February's 53.3, more than offsetting a decline in the growth rate in the manufacturing sector reported on Monday. A reading above 50 signals expansion in economic activity.

Growth in new orders slowed in March to 54.6, the lowest since October, from 56.6 last month. In the services sector, new business hit its lowest since November 2012 at 53.9, from 56.0 in February.

"Service sector activity rebounded in March after a weather-torn February, but the survey is clearly flashing some warning lights as to whether the economy has lost some underlying momentum," said Chris Williamson, chief economist at Markit, in a press release.

Clouding the outlook for next week's payrolls report, the pace of growth in hiring was unchanged from February for both the services sector and the overall private sector, matching lows not seen since March 2013.