Dow industrials eked out a small gain on Tuesday to end in record territory, but the broader market was weighed down by a selloff in financials, consumer discretionary and small-cap stocks amid concerns over the timing and ultimate shape of tax legislation working its way through Congress.
What are the main benchmarks doing?
The Dow Jones Industrial Average DJIA, +0.04% ended with a gain 8.81 points, or less than 0.1%, at 23,557.23.
The S&P 500 indexSPX, -0.02% closed less than a point lower at 2,590.64, retreating from an intraday record set earlier in the session. Meanwhile, the Nasdaq Composite Index COMP, -0.27%
declined 18 points, or 0.3%, to 6,767.78.
The Russell 2000 RUT, -1.26% index fell 1.3% to 1,479.09. The index of small-capitalization shares is seen as more sensitive to the prospects of tax reform than the other indexes, which are geared toward larger and multinational companies.
Financial stocks were by far the biggest decliners of the day, with the sector down 1.3%. The decline was driven by weakness in regional banks; the SPDR S&P Regional Banking ETF KRE, -2.75%
fell 2.8%. Among the day’s biggest decliners, Zions Bancorp ZION, -3.38% fell 3.4% while Regions Financial RF, -2.58% was off 2.6%.
Larger financial institutions were not immune to the weakness; Wells Fargo & Co. WFC, -2.01% and J.P. Morgan Chase & Co. JPM, -2.01% both declined 2%. Citigroup Inc. C, -1.48% fell 1.5%.
All three benchmarks closed at records on Monday, marking the 26th time this year that they’ve notched records simultaneously, which is itself a record. The three gauges are up between 16% and 26% for the year as of Monday’s close, boosted by factors such as an expanding U.S. economy, growing corporate profits and bets that the Trump administration will deliver tax cuts and other business-friendly measures. Because markets may have at least partially priced in movement on taxes, stocks could be vulnerable in the event a bill has trouble passing, analysts said.
Congressional Republican unveiled a long-awaited plan last week, though it was unclear when the policy could be enacted, what form it might take, or even whether it was likely to pass at all.
What are strategists saying?
“If you look at the bill that was introduced, it had some problems in areas like child credits or what it would do to the deficit, and the more congressmen and senators get an earful from their constituents, the harder it will be to vote yes”, said James Meyer, chief investment officer at Tower Bridge Advisors. “Republicans feel they have to pass something, anything, but I think all they’ll be able to do is a modest cut in corporate taxes with very little on the individual tax front.”
Sandy Villere, a portfolio manager who oversees about $2 billion in assets at St. Denis J. Villere & Company, noted that questions about tax policy were coming at a time when “the market is getting stretched on valuations”, though he added that “if the tax cuts come through, the market will look a lot cheaper than it is.”
“As long as tax talk is on the table, the market should continue grinding higher. You have a nice jobs picture, low interest rates, and earnings have been really good.”
What data are in focus?
The number of job openings in the U.S. rose slightly in September to 6.09 million, keeping them near a record high.
Separately, consumer borrowing surged in September by the largest amount in almost a year after slowing in the prior month.
Check out: MarketWatch’s Economic Calendar
Which stocks are in focus?
Shares in Priceline Group Inc.
PCLN, -13.52%
and TripAdvisor Inc.
TRIP, -23.22%
fell 13.5% and 23%, respectively, after each online travel company sounded downbeat about fourth-quarter revenue while posting earnings late Monday. The companies also seem to be planning an increase in advertising spending.
Etsy Inc.
ETSY, -1.69%
fell 1.7% after the craft-oriented e-commerce company late Monday reported its quarterly results.
Valeant Pharmaceuticals International Inc.
VRX, +17.11%
jumped 17% after it reported better-than-expected quarterly result, though it lowered its guidance for the rest of 2017.
Dean Foods Co.
DF, -1.09%
shares fell 1.1% after the company missed earnings forecasts.
Crocs Inc.
CROX, -9.09%
slumped 9.1% after the footwear seller beat revenue expectations but provided a downbeat outlook.
What are other assets doing?
Europe’s main stock gauges
SXXP, -0.49%
ended lower. Asian markets mostly finished higher, with Japan’s Nikkei
NIK, +1.73%
benchmark jumping 1.7% to reach its highest close since 1992, as one analyst noted “few risks on the horizon.”
Haven plays such as gold futures
GCZ7, -0.46%
and the Japanese yen
JPYUSD, +0.004386%
lost ground. The ICE U.S. Dollar Index
DXY, +0.20%
traded higher, while West Texas Intermediate crude futures
CLZ7, -0.71%
were little changed after surging in the previous session.
