Fed report sends Nasdaq lower; Dow edges higher

In this file photo, American flags fly in front of the New York Stock Exchange in New York. US stocks Tuesday, July 15. 2014, finished mostly lower with the Nasdaq dropping more than 0.5 percent after the Federal Reserve warned that some technology stocks appear to be overvalued. AP/Mark Lennihan

NEW YORK–US stocks Tuesday finished mostly lower with the Nasdaq dropping more than 0.5 percent after the Federal Reserve warned that some technology stocks appear to be overvalued.

The Dow Jones Industrial Average inched up 5.26 points (0.03 percent) to 17,060.68, while the S&P 500 fell 3.82 (0.19 percent) to 1,973.28.

The biggest losses came in the tech-rich Nasdaq Composite Index, which slumped 24.03 (0.54 percent) to 4,416.39.

Nasdaq fell as low as 4,389.70 earlier in the session after a Fed report to Congress said smaller stocks in social media and biotechnology “appear substantially stretched.”

The report was released in conjunction with congressional testimony by Fed Chair Janet Yellen, who said the central bank could implement interest rate increases “sooner and be more rapid than currently envisioned” if labor market conditions continue to improve more than expected.

Art Hogan, chief market strategist at Wunderlich Securities, said Yellen’s remarks on interest rates were “different” than what he expected and “sort of got my attention.”

Otherwise, Yellen “pretty well stuck to the script,” he said, noting that Yellen emphasized that the timeframe on raising rates was entirely data-dependent.

Leading technology and biotech names dropped, including Amgen (-1.8 percent), Biogen (-2.4 percent), Facebook (-1.1 percent), Tesla Motors (-3.1 percent) and Yelp (-2.9 percent).

Nasdaq heavyweight Apple dropped 1.2 percent.

Investors frowned on a complex deal in which US tobacco giant Reynolds American will buy Lorillard for $27.4 billion and sell cigarette brands including Salem and Winston to British firm Imperial Tobacco for $7.1 billion.

Reynolds sank 6.9 percent, while Lorillard plummeted 10.5 percent.

JPMorgan Chase led the Dow index higher, rising 3.5 percent after reporting earnings of $1.46 per share, well above analyst estimates of $1.29.

Goldman Sachs, another Dow component, rose 1.3 percent as earnings of $4.10 per share beat analyst expectations of $3.05. Strong results in underwriting and Goldman’s own investments offset a hit from lower trading fees for clients.

The good banking results lifted Bank of America (+1.5 percent), which reports earnings before markets open Wednesday.

Bond prices were mixed. The yield on the 10-year US Treasury rose to 2.55 percent from 2.54 percent Monday, while the 30-year held steady at 3.37 percent. Bond prices and yields move inversely.