US stocks end mixed on tax proposals and shaky forecasts
NEW YORK (AP) — U.S. stocks finished mixed on Thursday as investors pored over House Republican’s tax proposals and President Donald Trump picked Fed Governor Jerome “Jay” Powell to lead the Federal Reserve. Weak results from consumer and health care companies pulled those parts of the market lower.
The House tax plan would cut the top corporate tax rate to 20 percent from 35 percent. That helped smaller, more U.S.-focused companies, because they generally pay higher tax rates than larger firms that do a lot of business in other countries. Home improvement retailers and homebuilders slumped because the bill would reduce the amount of interest Americans can deduct on new mortgages. That could hurt home sales, particularly in high-cost areas.
The GOP tax plan was mostly what investors expected, said Mona Mahajan, U.S. investment strategist for Allianz Global Investors. She noted that the bill would immediately lower the corporate tax rate instead of reducing it over time, an idea some Republicans had proposed earlier.
“That alone is a win for corporations becoming more competitive with global peers, especially the small cap and domestic companies,” she said.
The choice of Powell also didn’t surprise Wall Street, as he had been seen as the most likely pick for a week or so. If he’s approved by the Senate, Powell would replace current Chair Janet Yellen when her term ends in February. He has been a Fed policymaker since 2012 and is generally seen as favoring lower interest rates than other top candidates. Investors expect him to keep raising rates at the gradual pace the Fed has maintained over the last few years while continuing to let its bond portfolio shrink.
The Standard & Poor’s 500 index rose 0.49 points to 2,579.85. The Dow Jones industrial average added 81.25 points, or 0.3 percent, to a record 23,516.26. The Nasdaq composite sank 1.59 points to 6,714.94. The Russell 2000 index of smaller-company stocks picked up 3.77 points, or 0.3 percent, to 1,496.55. Slightly more stocks on the New York Stock Exchange fell than rose.
The House tax plan could go through major changes, and Republicans have a slimmer majority in the Senate. As written, it would double the standard deduction used by most taxpayers to $12,000 for individuals and $24,000 for families and increase the child tax credit. The deduction for state income taxes would be eliminated and a deduction for local property taxes would shrink. It sets a 10 percent tax on profits for overseas subsidiaries of U.S. corporations and would let U.S. companies return profits stockpiled overseas at a one-time 12 percent rate.
Mahajan said a cut in personal taxes could boost consumer spending and economic growth, but she thinks companies would spend most of the savings from a corporate tax cut on dividends and stock buybacks instead of investment that would speed up economic growth.
Another part of the bill would reduce the widely-used deduction for mortgage interest for new home loans. It would cap the deduction for mortgage interest at the first $500,000 of the loan, half the current limit of $1 million. That change would apply only to new loans.
Luxury homebuilder Toll Brothers sank $2.84, or 6.1 percent, to $43.79. Retailer Home Depot fell $2.67, or 1.6 percent, to $162.71.
Several notable companies plunged after they cut their annual forecasts. Sharpie and Rubbermaid maker Newell Brands tumbled $10.99, or 26.6 percent, to a three-year low of $30.01. Underwear and sock maker Hanesbrands lost $1.93, or 8.8 percent, to $20.08.
While Powell, the proposed Federal Reserve chair, is seen as similar to Yellen in important ways, he shares Trump’s interest in reducing some of the banking regulations that were imposed after the 2008-09 financial crisis.
Trump’s first Federal Reserve appointment, Randy Quarles, was approved last month, and Allianz strategist Mahajan noted that three more Federal Reserve spots are open because of some early retirements and positions that Senate Republicans blocked President Barack Obama from filling. That means Trump can quickly pick several more policymakers who support his goals.
“He has a really unprecedented opportunity to shape the Fed like none other,” she said.
In electronic trading, Apple climbed 3.1 percent after its fiscal fourth-quarter results and its forecasts were better than expected.
Bond prices rose. The yield on the 10-year Treasury note declined to 2.35 percent from 2.37 percent. The yield on the 2-year note fell to 1.60 percent from 1.62 percent.
U.S. crude oil rose 24 cents to $54.54 a barrel in New York. Brent crude, the standard for international oil prices, picked up 13 cents to $60.62 a barrel in London.
Wholesale gasoline added 3 cents to $1.77 a gallon. Heating oil fell 1 cent to $1.85 a gallon. Natural gas rose 4 cents to $2.94 per 1,000 cubic feet.
Gold rose 80 cents to $1,278.10 an ounce. Silver dipped 4 cents to $17.14 an ounce. Copper remained at $3.14 a pound.
The dollar slipped to 114 yen from 114.22 yen. The euro rose to $1.1659 from $1.1620.
The Bank of England raised interest rates for the first time in a decade. The pound fell as investors felt rates won’t go up again soon, and the British FTSE 100 index rose 0.9 percent. Germany’s DAX fell 0.3 percent and the CAC 40 in France declined 0.1 percent. Tokyo’s Nikkei 225 gained 0.5 percent and the South Korean Kospi fell 0.4 percent while Hong Kong’s Hang Seng index shed 0.3 percent.