Stocks Log Losses as Senate Reveals Tax Plan…..

U.S. stocks traded lower and Treasury yields gave up early gains and finished mixed as volatility rose ahead of today’s release of the Senate’s tax reform plan, which differed from the House’s version in several areas. Crude oil prices and gold gained ground, while the U.S. dollar traded lower. In equity news, earnings reports continued to roll out, headlined by Macy’s better-than-expected results. The economic docket showed weekly jobless claims rose more than forecasted and a monthly gain in wholesale inventories matched estimates.

The Dow Jones Industrial Average (DJIA) declined 101 points (0.4%) to 23,462, the S&P 500 Index fell 10 points (0.4%) to 2,585, and the Nasdaq Composite dropped 39 points (0.6%) to 6,750. In moderate volume, 886 million shares were traded on the NYSE and 2.2 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.36 to $57.17 per barrel and wholesale gasoline was unchanged at $1.82 per gallon. Elsewhere, the Bloomberg gold spot price was $4.88 higher at $1,286.24 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% lower at 94.51.

Weekly initial jobless claims grew by 10,000 to 239,000 last week, above the Bloomberg forecast of an increase to 232,000, with the prior week’s figure being unrevised at 229,000. The four-week moving average declined by 1,250 to 231,250, while continuing claims rose 17,000 to 1,901,000, north of estimates of 1,885,000.

Wholesale inventories were unrevised at the preliminary estimate of 0.3% month-over-month (m/m) gain for September, matching forecasts and compared to August’s 0.8% gain. Sales grew 1.3% m/m, compared to forecasts of a 0.9% increase and August’s upwardly revised 1.9% jump. The inventory-to-sales ratio—the amount of time it would take to deplete inventories at the current sales pace—dipped to a 1.27 months pace from August’s 1.28 rate.

Treasuries finished mixed, with the yield on the 2-year note declining 2 basis points (bps) to 1.63%, while the yields on the 10-year note and the 30-year bond ticked 1 basis point higher to 2.33% and 2.80%, respectively.

Treasury yields relinquished gains and the U.S. dollar extended its loss amid uncertainty regarding the long road to tax reform as the markets received the Senate’s tax overhaul plan today. The plan differs on some key points from the House’s bill released last week, for example, the Wall Street Journal reported that the Senate’s bill will delay the corporate tax cut until 2019. This has opened the door for what could be a highly contentious reconciliation process and was cited as a source of an afternoon jump in volatility in the markets.

Schwab Center for Financial Research – Market Analysis Group

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