published on November 2, 2017 - 1:58 PM
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(AP) — U.S. stocks are mixed Thursday as investors pore over House Republicans’ tax proposals as well as a disappointing round of company results. A proposed cut in corporate taxes is helping shares of smaller companies, while home improvement retailers and homebuilders are down because the plan would reduce the amount of interest Americans can deduct on new mortgages. President Donald Trump nominated Jerome “Jay” Powell as the next chair of the Federal Reserve.

KEEPING SCORE: The Standard & Poor’s 500 index fell 1 point to 2,578 as of 3:30 p.m. Eastern time. The Dow Jones industrial average added 64 points, or 0.3 percent, to 23,499. The Nasdaq composite sank 4 points, or 0.1 percent, to 6,712. The Russell 2000 index of smaller-company stocks picked up 3 points, or 0.2 percent, to 1,496. Most of the stocks on the New York Stock Exchange fell.

TAX REAX: The House tax plan would temporarily cut the top corporate tax rate to 20 percent from 35 percent. Investors have long felt that would be a boon to smaller U.S. companies because they tend to pay taxes at higher rates than larger firms that do more business overseas. The bill would also 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 and it could affect home sales.

Lennar fell $1.94, or 3.4 percent, to $55.02 and Toll Brothers sank $3.03, or 6.5 percent, to $43.61. Home improvement retailers Home Depot and Lowe’s also slid.

TAX PROPOSAL: The plan may go through significant changes before it can pass the House, and Republicans have a smaller 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.

The GOP tax plan was mostly similar to what investors expected, said Mona Mahajan, U.S. investment strategist for Allianz Global Investors. She said an immediate corporate tax cut “is a win for corporations becoming more competitive with global peers, especially the small cap and domestic companies.”

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 capital spending that would affect the economy.

EARNINGS: Financial companies climbed after several companies posted better-than-expected results for the latest quarter. Intercontinental Exchange, which owns the New York Stock Exchange, gained $2.46, or 3.7 percent, to $68.67 and insurer Allstate advanced $3.42, or 3.6 percent, to $97.67.

Several notable companies plunged after they cut their annual estimates. Sharpie and Rubbermaid maker Newell Brands tumbled $10.43, or 25.4.5 percent, to $30.57. Underwear and sock maker Hanesbrands lost $1.96, or 8.9 percent, to $20.06 after it cut its forecasts. Those contributed to sharp losses for consumer-focused companies. Generic drugmaker Teva Pharmaceuticals hit its lowest price since 2000 as it sank $2.80, or 20 percent, to $11.22. Security software company Symantec slid $2.99, or 9.3 percent, to $29.17.

FED HEAD: Trump nominated Fed Governor Jerome “Jay” Powell to replace current Chair Janet Yellen, whose term ends in February. He is generally seen as favoring lower interest rates than other top candidates, similar to Yellen. Investors expect him to keep raising rates at the gradual pace the Fed has maintained over the last few years.

Mahajan said that Powell and Trump want to reduce regulations on banks that were imposed after the 2008-09 financial crisis. Trump’s first Federal Reserve appointment, Randy Quarles, was approved last month, and 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.

ENERGY: 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.

METALS: 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.

BONDS: 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 1.61 percent from 1.62 percent.

CURRENCIES: The dollar slipped to 114 yen from 114.22 yen. The euro rose to $1.1659 from $1.1620.

OVERSEAS: 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.

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