Stocks finish lower as doubts over pace of tax cuts weigh on sentiment

Getty Images White House Press Secretary Sarah Huckabee Sanders answers reporters' questions during a news conference on Monday.

U.S. stocks closed lower Monday as a report that the House of Representatives is considering phasing in a cut to corporate taxes rather than enacting them immediately weighed on investors confidence.

Tax cuts are the centerpiece in President Donald Trumps business-friendly agenda and are viewed as critical to sustaining the stock markets record-setting rally.

How did main benchmarks fare?

The Dow Jones Industrial Average
DJIA, -0.36%
shed 85.45 points, or 0.4%, to 23,348.74, weighed by components Merck & Co. Inc.
MRK, -6.06%
and Verizon Communications Inc.
VZ, -2.13%
The S&P 500 index
SPX, -0.32%
fell 8.24 points, or 0.3%, to 2,572.83.

The health-care sector took a particular hit, with a popular gauge of the industry, the Health Care Select Sector SPDR
XLV, -1.07%
falling 1.2% for its worst single-day decline since Aug. 17.

The Nasdaq Composite Index
COMP, -0.03%
set a fresh intraday record, but slid 2.30 points to 6,698.96.

What drove the markets?

The House is discussing a gradual phase-in for the corporate tax-rate cut that President Donald Trump and Republican leaders want a schedule that would have the rate reach 20 percent in 2022, according to Bloomberg News, citing people familiar with the matter.

White House Press Secretary Sarah Huckabee Sanders said during a news conference that Trump hasnt changed his principles on a tax overhaul and his plan doesnt include a phase-in.

Read: Live blog recap of White House press conference

Sanders also used the opportunity to distance Trump from Paul Manafort, the presidents former campaign manager, who is charged with conspiracy against the U.S. as part of special counsel Robert Muellers investigation into Russias interference in the 2016 presidential election.

Looking ahead, the markets are awaiting Trumps decision on who will lead the Fed after Chairwoman Janet Yellens term expires in February. A report Friday said Trump is leaning toward choosing Fed Gov. Jerome Powell, and on Monday a White House official indicated that a decision will come Thursday.

Meanwhile, the Fed policy makers meet Tuesday and Wednesday. No changes to monetary policy are expected, but the statement at the conclusion of the meeting will be closely watched for clues on whether policy makers intend to go ahead with a widely expected December increase in interest rates.

Check out: Fed statement may have treats for the hawks and the doves

Opinion: Trump-Ryan tax plan will encourage more corporate offshore tax avoidance

What are the data saying?

Consumer spending leapt 1% in September, the biggest gain since 2009, just as the current economic recovery got under way. Personal income rose 0.4%, but the savings rate fell to 3.1%, the lowest level since December 2007.

The personal-consumption-expenditure index, or PCE, the Federal Reserves preferred inflation gauge, increased 0.4% in September, while the closely followed core rate, which strips out food and energy, rose 0.1%.

What are analysts saying?

There is a fear that this administration cant get anything done, said Diane Jaffee, senior portfolio manager at TCW, referring to reports of a phase-in of lower corporate tax rates, which she said would be a viewed as a little bit of a failure if tax cuts didnt come all at once.

Mike Antonelli, equity sales trader at Robert W. Baird & Co., blamed Fridays big rally for the markets weakness.

Markets generally dont care about political drama, thats been proven time and again. We are much more focused on the odds of tax reform alongside earnings and macro data. Todays selloff is probably more about the fact that we were up big on Friday than Manafort, he said.

The direct connection to Trump was the key. And, at this moment, there is none, said Jamie Cox, managing partner at Harris Financial Group, referring to news of Manaforts indictment. Cox said investors have been bullish on Trumps pro-growth agenda and anything seen as derailing that could be a negative for markets.

Which stocks are in focus?

Apple Inc.s stock
AAPL, +2.25%
rallied 2.3% to an all-time record close of $166.72 as the iPhone maker is seen as drawing healthy demand for its latest mobile device, the iPhone X.

Telecom stocks were battered on a report that Softbank Group, which owns Sprint Corp.
S, -9.30%
will call off merger talks with T-Mobile US Inc.
TMUS, -5.35%
Sprint shares skidded 9.3% and T-Mobile sank 5.4%, while AT&T Inc.
T, -1.27%
dropped 1.3% and Verizon Communications
VZ, -2.13%
shed 2.1%.

Shares of CalAtlantic Group Inc.
CAA, +21.31%
soared 21% after the home builder said it plans to merge with peer Lennar Corp.
LEN, -4.02%
in a deal worth about $9.3 billion, including $3.6 billion in assumed net debt. Lennar shares slipped 4%.

Wal-Mart Stores Inc.
WMT, -1.38%
fell 1.4%. The head of the companys U.K. chain Asda, Sean Clarke, will leave his post on Dec. 31 and will be succeeded by Roger Burnley.

Dynegy Inc.
DYN, +5.61%
jumped 5.6% after the energy company said it is merging with Vista Energy in a deal that would value the combined entities at more than $10 billion.

Akzo Nobel NV
AKZA, +0.71%
AKZOY, -1.82%
and U.S. rival Axalta Coating Systems Ltd.
AXTA, -2.17%
said they are in talks to merge. Akzo Nobel shares rose 0.7% in Amsterdam, while Axalta shares declined by 2.2%.

Shares of Huntsman Corp.
HUN, +0.97%
rose 1%. Activist U.S. investors, who helped scuttle a proposed merger between Huntsman and Swiss chemicals company Clariant
CLN, -2.53%
, said they would try to seek a seat on Clariants board of directors and push for more changes.

U.S.-listed shares of HSBC Holdings PLC
HSBC, -0.89%
fell 0.9% even after the bank said it swung to a third-quarter net profit of $3.24 billion.

What are other markets doing?

The ICE Dollar Index
DXY, +0.06%
was down 0.5% while oil prices
CLZ7, -0.18%
rose and gold
GCZ7, -0.09%
settled higher.

Stocks in Europe
SXXP, +0.12%
finished slightly higher, but Spanish stocks
IBEX, +2.44%
rallied 2.4%. Spains central government is taking control of Catalonia after removing the regions president Carles Puigdemont and calling for new elections on Dec. 21. Hundreds of thousands of pro-unity demonstrators rallied in Catalonia on Sunday.

Stocks in Asia
ADOW, +0.00%
ADOW, +0.00%
mostly fell, with Chinese stocks
SHCOMP, -0.23%
dented in part by a bond selloff.

Sara Sjolin and Barbara Kollmeyer contributed to this article

Related Topics U.S. Stocks Markets NY Stock Exchange NASDAQ

Quote References DJIA -85.45 -0.36% MRK -3.53 -6.06% VZ -1.04 -2.13% SPX -8.24 -0.32% XLV -0.88 -1.07% COMP -2.30 -0.03% AAPL +3.67 +2.25% S -0.65 -9.30% TMUS -3.37 -5.35% T -0.43 -1.27% CAA +8.62 +21.31% LEN -2.33 -4.02% WMT -1.22 -1.38% DYN +0.63 +5.61% AKZA +0.55 +0.71% AKZOY -0.56 -1.82% AXTA -0.72 -2.17% HUN +0.30 +0.97% CLN -0.64 -2.53% HSBC -0.44 -0.89% DXY +0.06 +0.06%

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