Tech Sector Leads Stocks Lower
By Michael Wursthorn and David Hodari -- Dow industrials, S&P and Nasdaq fall -- Tech companies weigh on indexes -- Investors await crucial tax votes
Declining shares of technology companies caused major indexes to wobble Tuesday, even as Republicans advanced their sweeping rewrite of the U.S. tax code.
After two consecutive sessions of gains for all three major indexes, investors paused Tuesday as House Republicans voted to approve the latest version of the overhaul as expected. The bill has already sent shares higher in recent sessions, building on the momentum stocks have enjoyed from another strong quarter of earnings and an expanding U.S. economy.
"The market had a little bit of excitement" Monday as investors continued to price in the likelihood of Republicans completing their tax bill this year, said Tony Roth, chief investment officer for Wilmington Trust. "It's taking a little bit of a breather as Congress works through its process and gets the bill to the president."
The Dow Jones Industrial Average shed 15 points, or less than 0.1%, to 24777 in recent trading, while the S&P 500 fell 0.2%. The tech-heavy Nasdaq Composite dropped 0.5%.
Declines among shares of tech companies weighed on indexes. While analysts say the tax bill is expected to boost profits among companies that pay relatively high effective tax rates, such as retailers, banks and other firms, tech companies aren't expected to benefit as much, analysts say, since they tend to pay a lower tax bill than companies in other sectors.
Tech companies in the S&P 500 pay an effective tax rate of about 18%, according to data from FactSet.
Besides that, some investors are likely selling some of their tech holdings to reap year-end gains, analysts added, and are moving that money into sectors that have underperformed, such as energy and consumer staples.
"You're seeing some profit-taking from the winners this year and a rebound among the losers," said Rob Haworth, a senior investment strategist at U.S. Bank Wealth Management.
Chip makers Qualcomm lost 1.2%, while Lam Research declined 1.3%. PayPal Holdings also fell, shedding 1.1%.
That offset gains among consumer staples and energy companies.
CVS Health rose 1.3% in recent trading, while Wal-Mart Stores gained 1%. Among energy firms, Marathon Oil gained 3.2% and Noble Energy added 4.3%.
The expected passage of the tax bill also contributed to a pullback in U.S. government bond prices. The yield on the benchmark 10-year Treasury note was 2.463%, according to Tradeweb, compared with 2.392% Monday. Yields rise as prices fall.
House Republicans passed the tax bill by a comfortable margin. The Senate is expected to vote later Tuesday.
"There'll be some movement the more likely it becomes," said Ben Laidler, global equities strategist at HSBC. "The S&P's done well and that tells you it's not been priced in yet. The tax cuts could add 7% to large-cap earnings, double that to small-cap earnings...and tax reform should extend this earnings cycle."
European stocks' early momentum ran out of steam after most Asia-Pacific indexes closed higher Tuesday. The Stoxx Europe 600 fell 0.4%.
In Asia, the Shanghai Composite rose 0.9%, while Hong Kong's Hang Seng Index returned to positive territory for December, gaining 0.7%. Japan's Nikkei fell 0.1%, with Sony 0.9% lower and Nintendo falling 0.8%.
Write to Michael Wursthorn at Michael.Wursthorn@wsj.com and David Hodari at David.Hodari@dowjones.com
(END) Dow Jones Newswires
December 19, 2017 15:24 ET (20:24 GMT)Copyright (c) 2017 Dow Jones & Company, Inc.