The U.S. equity market retreated from record highs on Monday as investors engaged in a little profit taking ahead of another busy week. The Nasdaq touched a new record high early in the session, but eventually settled just a tick below its flat line. The S&P 500 and the Dow finished with respective losses of 0.3% and 0.4%, while the small-cap Russell 2000 underperformed, dropping 1.2%.
After opening modestly lower, the stock market looked as if it might take a stab at another record high, but a Bloomberg report that the House is considering a gradual phase-in approach for reducing the corporate tax rate prompted a sharp, but modest, sell off. The White House later said that President Trump does not support a phase-in approach, but equities continued trending sideways at session lows.
Telecoms paced Monday's retreat after the Nikkei Asian Review reported that Sprint's (S 6.34, -0.65) parent company, SoftBank, plans to end merger talks between Sprint and T-Mobile US (TMUS 59.58, -3.37). The two wireless names moved sharply lower following the report, but pared some of their losses after CNBC's David Faber said parts of the report were untrue.
Still, the two companies finished solidly lower, dropping 9.3% and 5.4%, respectively, and the S&P 500's telecom services sector lost 1.4%.
The health care sector (-1.1%) also struggled on Monday, with Dow component Merck (MRK 54.71, -3.53) showing particular weakness. The pharmaceutical giant tumbled 6.1% after announcing on Friday that it withdrew its European application for its cancer drug Keytruda. Morgan Stanley, Barclays, and SunTrust each downgraded the company following the announcement.
On a positive note, Apple (AAPL 166.72, +3.67) climbed 2.3% to settle at a fresh record high. The tech giant has added 5.9% over the last two sessions after the company announced that demand for its new iPhone X has been "off the charts" and following upbeat earnings from fellow mega caps Amazon (AMZN 1110.85, +9.90), Microsoft (MSFT 83.89, +0.08), and Alphabet (GOOG 1017.11, -2.16).
Apple, which is the largest company in the S&P 500 by market cap, will report earnings on Thursday evening.
In the bond market, U.S. Treasuries ended Monday with solid gains, erasing their losses from last week; the yield on the benchmark 10-yr Treasury note dropped five basis points to 2.37%. News of a potential phase-in approach for reducing the corporate tax rate (as mentioned above) and another lukewarm reading for the PCE Price Index helped fuel the rally.
Reviewing Monday's economic data, which included September Personal Income, Personal Spending, and PCE Prices:
- Personal income ticked up 0.4% in September (Briefing.com consensus +0.3%) following an unrevised increase of 0.2% in August. Personal spending rose 1.0% (Briefing.com consensus +0.8%), while the prior month's uptick was left unrevised at 0.1%. The PCE Price Index jumped 0.4% (Briefing.com consensus +0.4%), while the core PCE Price Index--which excludes food and energy--increased 0.1% (Briefing.com consensus +0.1%). The PCE Price Index is the Fed's preferred inflation gauge.
- With the September increases, the PCE Price Index is up 1.6% year-over-year, versus up 1.4% for August, while the core PCE Price Index is up 1.3%, unchanged from August. The key takeaway is that the PCE price data won't trigger any major inflation alarm, yet it also won't be seen as persuading the Fed from raising the fed funds rate at its December meeting.
On Tuesday, investors will receive several pieces of data, including the third quarter Employment Cost Index (Briefing.com consensus 0.6%) at 8:30 ET, the August S&P Case-Shiller Home Price Index (Briefing.com consensus 5.9%) at 9:00 ET, the October Chicago PMI (Briefing.com consensus 61.0) at 9:45 ET, and October Consumer Confidence (Briefing.com consensus 121.5) at 10:00 ET.
- Nasdaq Composite +24.4% YTD
- Dow Jones Industrial Average +18.2% YTD
- S&P 500 +14.9% YTD
- Russell 2000 +9.9% YTD