Stocks dug further into the red on Monday, Oct. 30, as investors weighed how a proposed phase-in corporate tax rate cut might impact U.S. companies.
The Dow Jones Industrial Average was down 0.3%, and the S&P 500 slid 0.3%. The Nasdaq turned lower, falling 0.05%.
House Republicans could include a gradual corporate tax rate cut that will be unrolled to companies over five years, sources told Bloomberg on Monday. The proposal would see the current 35% rate cut by three percentage points each year, ultimately ending at a 20% rate in 2022. It is not clear how such a drastic rate cut would benefit the middle class as Republicans have promised their plan would.
The reported details shed a little color on what Republicans may propose when a bill is made public as early as Wednesday, Nov. 1. Investors so far have seen little detail on highly anticipated reform, though the promise of what's to come has supported market gains in recent months. The Trump White House has promised tax cuts for individuals and businesses, but details on how they will be paid for without blowing up the deficit have not been forthcoming.
Progress in the Robert Mueller investigation into Russian interference in the 2016 presidential election triggered uncertainty in Washington and on Wall Street. Former Trump campaign chairman Paul Manafort and longtime aide Rick Gates reportedly have been told to surrender to authorities for arrest, according to the New York Times. Charges include money laundering, foreign lobbying and tax fraud.
The potential for the first arrests linked to special counsel Mueller's investigation into Russia meddling in last year's elections had been discussed all weekend by a number of different media outlets.
Trump unleashed a barrage of Tweets Sunday expressing anger and dismay at the length and cost of the investigation and said it was a distraction to his overall economic ambitions on tax reform. On Sunday, Trump tweeted, "All of this 'Russia' talk right when the Republicans are making their big push for historic Tax Cuts & Reform. Is this coincidental? NOT!"
However, any uncertainty on Monday will not likely lead to any kind of major correction for markets, according to Sam Stovall, chief investment strategist of U.S. equity strategy at CFRA.
"People have asked me if politics could throw the S&P 500 into a bear market -- I say no," he told TheStreet in an email. "The stock market truly worries only about events that could trigger a recession. Politics makes for great headlines, but only recessions put a dent into bottom lines."
Trump will reveal his pick to head the Federal Reserve on Thursday, according to a White House official. According to data from political predictions market website PredictIt, Jerome Powell is leading the pack in the race to become the next chair of the U.S. central bank, taking over from current chair Janet Yellen.
Merck & Co. Inc. (MRK) - Get Merck & Co., Inc. (MRK) Report was the biggest loser on the Dow after withdrawing an application for approval for an additional indication of wonder drug Keytruda in Europe. In a statement late Friday, Oct. 27, Merck said that it has withdrawn its European application for the drug in combination with pemetrexed and carboplatin as a first-line treatment for metastatic nonsquamous non-small cell lung cancer. No concrete reason for the withdrawal was given.
Merck losses weighed on the rest of the healthcare sector. Johnson & Johnson (JNJ) - Get Johnson & Johnson (JNJ) Report , Pfizer Inc. (PFE) - Get Pfizer Inc. Report , AbbVie Inc. (ABBV) - Get AbbVie, Inc. Report , Amgen Inc. (AMGN) - Get Amgen Inc. Report and Sanofi SA (SNY) - Get Sanofi Sponsored ADR Report were all lower on Monday. The Health Care Select Sector SPDR ETF (XLV) - Get Health Care Select Sector SPDR Fund Report decreased 0.7%.
General Motors Co. (GM) - Get General Motors Company (GM) Report was downgraded to sell from neutral at Goldman Sachs on concerns over earnings potential in 2018. Analyst David Tamberrino said in a note that the firms sees "a downward inflection in GM earnings." For 2018, the firm anticipates adjusted earnings to fall by 22%. GM shares fell 2.6%.
GM pulled the cyclical consumer stocks sector lower on Monday, though not its automaker peers. Sector stocks such as Home Depot Inc. (HD) - Get Home Depot, Inc. (HD) Report , Priceline Group Inc. (PCLN) , Nike Inc. (NKE) - Get NIKE, Inc. (NKE) Report , Costco Wholesale Corp. (COST) - Get Costco Wholesale Corporation Report , and Lowe's Companies Inc. (LOW) - Get Lowe's Companies, Inc. (LOW) Report were in the red.
More gains for the tech sector sent the Nasdaq to trade at fresh intraday record highs earlier in the session. Facebook Inc. (FB) - Get Facebook, Inc. Class A Report , Alibaba Group Holding Ltd. (BABA) - Get Alibaba Group Holding Ltd. Sponsored ADR Report and Taiwan Semiconductor Manufacturing Co. Ltd. (TSM) - Get Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR Report were all higher on Monday. The Technology Select Sector SPDR ETF (XLK) - Get Technology Select Sector SPDR Fund Report increased 0.4%.
Apple Inc. (AAPL) - Get Apple Inc. (AAPL) Report got a big lift and secured an all-time intraday high on reports of high demand for its newly available iPhone X, a premium anniversary model with a $999 price tag. The device, which went on sale on Friday, has delivery times of five to six weeks, suggesting a rush of orders eating up supply.
Alphabet Inc. (GOOGL) - Get Alphabet Inc. Class A Report , Amazon.com Inc. (AMZN) - Get Amazon.com, Inc. Report and Microsoft Corp. (MSFT) - Get Microsoft Corporation (MSFT) Report went gangbusters on Friday, Oct. 27, surging to all-time highs and delivering a record close to the Nasdaq.
The tech-heavy index rose 2.2% on Friday in its best one-day percentage gain of the year and its largest since Nov. 7, the day before Election Day. The index broke a week-old record close by more than 70 points.
The impact of a string of devastating hurricanes in late August and early September will again be the focus of investor attention this week with the release of the U.S. jobs report for October. That report, to be released on Friday, Nov. 3, should provide color on how those disasters affected the U.S. economy.
After a surprisingly weak September report, the onus is on October to show that this isn't the beginning of a trend. But, like with the September jobs report, Wall Street could take any weakness in stride as a momentary blip in an otherwise healthy labor market.
The U.S. nonfarm payrolls report for September showed the first contraction in seven years, a result of Hurricane Harvey and Irma that hit Texas and Florida, respectively. Almost 3% of employed workers nationwide said they had not been able to work or had worked fewer hours in September because of bad weather, a record high for the measure. Leisure and hospitality jobs saw a sharp decline.
But markets mostly shrugged when that surprise came on Oct. 6. The Dow Jones Industrial Average and S&P 500 both closed with minor losses, while the Nasdaq inched higher to seal a new record.
Investors have high hopes of a solid rebound on nonfarm payrolls in October. Consensus is for 310,000 jobs to have been added to the U.S. economy and for the unemployment rate to hold at 4.2%, according to FactSet. Year-over-year hourly earnings are expected to have increased 2.7%.
In economic news Monday, income and spending rose in September. Incomes increased by 0.4% in September, according to the Bureau of Economic Analysis, meeting analysts' estimates. Consumer spending grew by 1%, while the savings rate dropped to 3.1%.
In deal news Monday, Lennar Corp. (LEN) - Get Lennar Corporation Class A Report agreed to buy smaller rival CalAtlantic Group (CAA) for $9.3 billion to create the U.S.'s largest homebuilder. The boards of both companies approved a definitive merger agreement where each CalAtlantic share would be exchanged for 0.885 shares of Lennar Class A common share, valuing the company at approximately $9.3 billion, including $3.6 billion of net debt assumed.
The combination will create a homebuilder with revenue of more than $17 billion in the past 12 months and a market capitalization of about $18 billion. The combined company will control approximately 240,000 homesites and will have about 1,300 active communities in 49 markets across 21 states, where roughly 50% of the U.S. population currently lives.
Novartis AG (NVS) - Get Novartis AG Sponsored ADR Report agreed to buy French drugmaker Advanced Accelerator Applications S.A. (AAAP) for $3.9 billion in a deal to strengthen its oncology businesses. Advanced Accelerator develops, produces and commercializes molecular nuclear medicines including Lutathera, which was approved in Europe in September for use against gastroenteropancreatic neuroendocrine tumors.
Under the deal, Novartis will make a cash offer of $41 a share and $82 per American depositary share for Advanced Accelerator, valuing the French company at $3.9 billion.
Akzo Nobel NV (AKZOY) confirmed on Monday that it was in talks with Axalta Coating Systems Ltd. (AXTA) - Get Axalta Coating Systems Ltd. Report about a possible merger. The Dutch paints maker said it was in "constructive discussions" about a "merger of equals" of AkzoNobel Paints & Coating and Axalta, which would create a company with a market value of about $30 billion. Akzo Nobel was responding to market speculation about the talks that sent Axalta's shares up 16.95% on Friday, Oct. 27, to $33.15..
Tesla Inc. (TSLA) - Get Tesla Inc Report shares were downgraded to neutral from buy at Evercore after analysts grew "more cautious" over production of the Model 3. Analysts said in a note that the electric vehicle was the "most important piece of the Tesla investment story in coming quarters." Tesla will report on earnings this Wednesday, Nov. 1.
Updated from 12:51 p.m. ET, Oct. 30.
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