Uncertainty in Washington, D.C., a healthcare sector in selloff mode and a big deals day on Wall Street sent U.S. equities lower to begin the week.
The Dow Jones Industrial Average was down 0.36% on Monday, Oct. 30, the S&P 500 slid 0.32%, and the Nasdaq fell 0.03%.
Investors weighed how a proposed phase-in corporate tax rate cut might impact U.S. companies on Monday after proposed bill details leaked. 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 were charged with money laundering and tax fraud. The two men appeared in U.S. District Court in Washington, D.C. and pleaded not guilty to all charges.
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) was the biggest loser on the Dow, falling 6%, 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) , Pfizer Inc. (PFE) , AbbVie Inc. (ABBV) , Amgen Inc. (AMGN) and Sanofi SA (SNY) were all lower on Monday. The Health Care Select Sector SPDR ETF (XLV) decreased 1%.
In deal news Monday, Lennar Corp. (LEN) 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.
Deal negotiations between Sprint Corp. (S) and T-Mobile U.S. (TMUS) have reportedly been called off by Sprint parent SoftBank Group Corp. (SFTBF) . The companies were unable to agree upon ownership shares, according to a report in the Nikkei Asian Review. SoftBank will reportedly reach out to T-Mobile owner Deutsche Telekom on Tuesday, Oct. 31 to officially cease discussions.
Novartis AG (NVS) 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) 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..
General Motors Co. (GM) 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 2.8%.
GM pulled the cyclical consumer stocks sector lower on Monday, though not its automaker peers. Sector stocks such as Home Depot Inc. (HD) , Priceline Group Inc. undefined , Nike Inc. (NKE) , Costco Wholesale Corp. (COST) , and Lowe's Companies Inc. (LOW) 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) , Alibaba Group Holding Ltd. (BABA) and Taiwan Semiconductor Manufacturing Co. Ltd. (TSM) were all higher on Monday. The Technology Select Sector SPDR ETF (XLK) increased 0.4%.
Apple Inc. (AAPL) got a big lift 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. Apple shares jumped 2.2%.
Alphabet Inc. (GOOGL) , Amazon.com Inc. (AMZN) and Microsoft Corp. (MSFT) 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.
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%.
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