U.S. stocks end mixed on tax proposals and shaky forecasts
NEWYORK » 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 themarket lower.
The House tax plan would cut the top corporate tax rate to 20 percent from35 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 themost 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 500index rose0.49 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 thatwould 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 All ian zs tr ate gist Ma ha jan 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.