The Nasdaq Composite Index (CCMP)fell as Yahoo! Inc. and Groupon Inc. led a selloff in Internet stocks for a second day. The Standard & Poor’s 500 Index rose amid optimism the Federal Reserve will continue to support the U.S. economy.

The Dow Jones Internet Composite Index dropped 2 percent and touched the lowest level since October. Groupon fell 19 percent as sales and profit projections trailed some estimates. Yahoo slumped 5.8 percent as Alibaba Group Holding Ltd. filed for a U.S. initial public offering. Whole Foods Market Inc. declined 20 percent after cutting its 2014 profit forecast for a third time because of increasing competition. Electronic Arts jumped 18 percent after reporting better-than-forecast results.

The Nasdaq Composite slipped 0.7 percent as of 12:30 p.m. in New York, paring an earlier drop of 1.5 percent. The S&P 500 gained 0.3 percent to 1,873.98, rebounding after dropping below its average trading level for the past 50 days. The Dow Jones Industrial Average gained 107.43 points, or 0.7 percent, to 16,508.45. Trading in S&P 500 stocks was 10 percent above the 30-day average during this time of day.

“You’re seeing a brutal shift from growth and momentum investing to more value-based investing,” Chad Morganlander, a fund manager at Stifel Nicolaus & Co., which oversees more than $150 billion, said in a phone interview from Florham Park, New Jersey. “The momentum stocks are ridiculously overvalued, but nonetheless, the overall broader market is fairly valued. Any kind of shift in momentum does spook investors.”

Technology stocks led this year’s selloff among companies whose growth are more tied to economic swings after a rally drove valuations to about double that of the S&P 500. The Nasdaq Composite is trading at 35 times reported earnings, compared with a multiple of 17.2 for the broad market measure.

David Fuller's view

Janet Yellen’s comments were favourable for Wall Street today but I think Putin’s U-turn, if you believe him, was at least equally responsible for the firm close. 

However, a number of ‘new technology’ shares, took a beating today, in a continuation of the trend which commenced earlier this year.  Some people are talking about buying them and some of the activity looks climactic.  However, I would not rush in where valuations are still high.  The ‘new tech’ bubble has burst and while it was considerably smaller than what we saw in 1999-2000, helping to end the last secular bull market on Wall Street, there are usually many false dawns, often caused by short covering, before a sustained recovery commences following a burst bubble.

As an aside, I have wondered if some of the selling of US ‘new tech’ shares has been to raise funds for the Alibaba float. 

In a more general cautioning signal for investors, the Nasdaq Composite (weekly & daily) and the Russell 2000 (weekly & daily) led the bull market.  Leaders usually lead in both directions and these indices look toppy.  Note: these prices were taken before Wednesday’s closes which were slightly higher.