U.S. stocks failed to defend modest gains, closing down for a second consecutive session on Wednesday as allegations about improprieties at Valeant Pharmaceuticals International Inc. weighed on the S&P 500’s health-care sector and pressured the broader market.
Valeant VRX, -11.42% skidded as much as 40% after short selling firm Citron Research alleged that the drug company was shipping products to a subsidiary and then falsely claiming the revenue. Valeant pared losses after refuting the short seller’s claims.
The news battered the S&P 500’s health-care stocks with the sector finishing down 0.9%. Health-care sector losses also dragged on the Dow Jones Industrial Average, with UnitedHealth Group Inc. UNH, -0.90% among the biggest blue-chip decliners.
“The story of the day is Valeant and its spillover into biotech,” said Ian Winer, director of equity trading at Wedbush Securities.
The S&P 500 SPX, +0.88% shed 11.83 points, or 0.6%, to close at 2,018.94, with nine of its 10 main sectors finishing lower. The Dow Jones Industrial Average DJIA, +0.84% fell 48.50 points, or 0.3%, to end at 17,168.61, while the Nasdaq Composite COMP, +0.92% declined 40.85 points to 4,840.12.
Earlier gains in the market were credited to the successful listing of Ferrari NV RACE, +2.29% and a series of deal announcements.
Ferrari shares rallied to close 5.8% higher on their first day of trading after the car maker’s initial public offering priced at the top of expectations Tuesday.
SanDisk Corp. SNDK, -0.08% shares climbed 2.1% as Western Digital Corp. WDC, +1.32% agreed to buy the flash-storage company in a $19 billion deal.
“Merger and acquisition is a huge tailwind as a result of the Federal Reserve depressing rates,” said Winer.
Shares in KLA-Tencor Corp. KLAC, +1.63% surged 19% as Lam Research Corp. LRCX, +2.73% plans to acquire the provider of semiconductor equipment in a $10.6 billion deal that values KLA-Tencor’s stock at about 24% above where it closed Tuesday.
The S&P 500 is likely to see support around 2,000, said Katie Stockton, chief technical strategist at BTIG, with its 200-day moving average of 2,060 acting as resistance.
The 200-day moving average “is so widely-followed, and therein becomes self-fulfilling,” said Stockton, who said the possibility of a pullback is not a reason to be bearish.
The mood in the market, however, is much harder to pin down, according to Winer, with lots of opportunities for investors to find market-outperforming investments. “Sentiment is utter confusion and now more idiosyncratic, with plenty of alpha out there.”
Movers and shakers: Shares of General Motors Co. GM, +0.65% gained 5.8% after the auto maker posted third-quarter profit and revenue well above expectations, while Boeing Co. BA, +1.39% rose 1.7% after its better-than-anticipated earnings and improved outlook.
Coca-Cola Co.’s KO, +1.29% shares fell 0.2% as the soda giant’s revenue missed forecasts.
Chipotle Mexican Grill Inc. CMG, -0.40% slumped 5.7% after its disappointing results late Tuesday. Yahoo Inc. YHOO, +1.35% declined 5.2% after the Web pioneer warned late Tuesday about the holiday quarter.
Other markets: Oil futures CLZ5, +1.13% fell 2.3% after the U.S. Energy Information Administration reported a big jump in crude supplies. Analysts were also pessimistic that members of the Organization of the Petroleum Exporting Countries will take any steps to support prices. Gold futures GCZ5, -0.09% dropped 1% while a key dollar index DXY, +1.00% was moderately higher.
European stocks SXXP, +1.49% rose after shaking off early losses. Asian stocks showed mixed action, with Japan’s Nikkei NIK, -0.64% closing up 1.9% but the Shanghai Composite SHCOMP, +1.45% ending 3.1% lower for its biggest drop in a month.
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