Markets closed lower on Tuesday after investors speculated over the possible effects of retaining the alternate minimum tax in the final tax Bill. Moreover, the S&P 500 posted its third straight day of losses. The Dow and the Nasdaq also ended in the red after suffering broad based losses. Meanwhile, the ISM Service Index for November declined from the 12 year high it had hit a month earlier.
The Dow Jones Industrial Average (DJIA) decreased 0.5%, to close at 24,180.64. However, the S&P 500 Index (INX) fell 0.4% to close at 2,629.57. The tech-laden Nasdaq Composite Index (IXIC) closed at 6,762.21, losing 0.2%. Decliners outnumbered advancers on the NYSE by a 1.27-to-1 ratio. On Nasdaq, a 1.24-to-1 ratio favored declining issues. The CBOE VIX decreased 0.9% to close at 11.58.
Investors Assess Changes Made to Tax Bill
Early Saturday, U.S. Senate Republicans passed the much awaited tax Bill after they won a vote 51 to 49 to pass the tax overhaul bill in the Senate. According to the Tax Cuts and Jobs Act, corporate tax rate will be reduced to 20% from 35%, while companies will be allowed to pay a 5% tax on reinvested earnings and 10% tax on deferred cash earnings.
However, this Bill included a last-minute amendment which does not repeal the corporate alternative minimum tax or AMT, a proposal which was part of the draft legislation. Such an amendment places the Senate’s Tax Bill at loggerheads with the Republican Bill because members of the GOP want this facet removed in the final legislation.
Economists have stated that if AMT is included in the final version of the Bill, it would weigh heavily on corporate earnings and tax reforms would not turn not to be beneficial for large-cap corporations, the likes of which include big tech companies. Investors contemplated the effects of such a change and this led to broad based losses for the markets.
S&P 500 Posts its First Three-Day Streak of Losses
The S&P 500 declined for the third straight day, posting its first three-session decline since August. The S&P 500 lost 9.9 points to end in the red after suffering broad-based losses in intraday trade. Of its 11 major sectors, 10 ended in negative territory with utilities leading the decliners. The Utilities Select Sector SPDR ETF (XLU) declined 1.3%.
Tech shares rebounded after suffering losses on Monday. Tech sector eventually turned out to be the only segment in the S&P 500 to finish with gains. The Technology Select Sector SPDR ETF (XLK) increased a meager 0.03%.
How Did the Dow and Nasdaq Perform?
The Dow declined 109.41 points to pare earlier gains and ended in negative territory on Tuesday after suffering broad based losses. Shares of Disney DIS declined 2.7% following reports from CNBC's David Faber that the company was in talks to buy some key assets of 21st Century Fox FOXA. This was the biggest drag on the Dow.
Meanwhile, Nasdaq shed 13.2 points on Tuesday to also post a three-day decline. Most of the tech-heavy index’s losses were broad based. Earlier in the session, Nasdaq treaded 0.6% higher.
On the economic data front, the ISM Service Index for November came in at 57.4%, lower than the consensus estimate of 59.1%. The reading also came in lower than the 60.1% registered for October, a 12-year high. The new orders index dipped to 58.7%, production declined to 57% and employment slipped to 55.3%.
Meanwhile, U.S. trade deficit surged 8.6% to $48.7 billion, a nine-month high. The reading came in higher than the consensus estimate of $46.4 billion.
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