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Stocks Climb Off Worst Levels But Close Firmly Negative - U.S. Commentary


Stocks climbed off their worst levels of the day but still ended Thursday's trading firmly in negative territory. With the drop on the day, the major averages pulled back off the record closing highs set in the previous session.

The major averages more than offset the modest gains posted on Wednesday. The Dow fell 101.42 points or 0.4 percent to 23,461.94, the Nasdaq slid 39.07 points or 0.6 percent to 6,750.05 and the S&P 500 dropped 9.76 points or 0.4 percent to 2,584.62.

The weakness on Wall Street came as traders reacted to reports regarding the Senate version of tax reform legislation.

The proposed bill has several key differences with the House version, including a delay in the implementation of the cut in the corporate tax rate.

The Senate bill still reduces the corporate tax rate to 20 percent from 35 percent, although the new rate does not take effect until 2019. The House bill would start the 20 percent rate next year.

The delay of the corporate tax cut in the Senate bill reflects an effort by Senators to partly offset the cost of the legislation.

The Senate bill also maintains seven tax brackets versus the four in the House bill, but the top rate is lowered to 38.5 percent from 39.6 percent.

While state and local tax deductions are completely repealed in the Senate version, the bill maintains the cap on the mortgage interest deduction at $1 million.

On the U.S. economic front, the Labor Department released a report showing a bigger than expected increase in initial jobless claims in the week ended November 4th.

The report said initial jobless claims climbed to 239,000, an increase of 10,000 from the previous week's unrevised level of 229,000. Economists had expected jobless claims to edge up to 231,000.

A separate report from the Commerce Department showed wholesale inventories rose by 0.3 percent in September, matching economist estimates.

Sector News

Networking stocks moved sharply lower over the course of the session, dragging the NYSE Arca Networking Index down by 2.3 percent. The index pulled back off its best closing level in almost a month.

Infinera (INFN) led the networking sector lower after the communications equipment maker reported a third quarter loss compared to a year ago profit, although the loss was narrower than expected.

Significant weakness was also visible among semiconductor stocks, as reflected by the 2 percent loss posted by the Philadelphia Semiconductor Index. The drop by the index came after it ended the previous session at its best closing level in over seventeen years.

Steel, transportation, and internet stocks also saw considerable weakness, while natural gas stocks rebounded strongly after coming under pressure on Wednesday.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Thursday. Japan's Nikkei 225 Index dipped by 0.2 percent, while Hong Kong's Hang Seng Index advanced by 0.8 percent.

Meanwhile, the major European markets all moved to the downside on the day. While the U.K.'s FTSE 100 Index fell by 0.6 percent, the French CAC 40 Index and the German DAX Index slumped by 1.2 percent and 1.5 percent, respectively.

In the bond market, treasuries climbed back near the unchanged line after seeing early weakness. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, inched up by less than a basis point to 2.331 percent.

Looking Ahead

Trading on Friday may be impacted by reaction to the latest earnings news, with Disney (DIS), Nvidia (NVDA), Dillard's (DDS), Nordstrom (JWN), Hertz (HTZ), and Equifax (EFX) among the companies releasing their quarterly results after the close of today's trading.

Department store operator J.C. Penney (JCP) is also scheduled to release its third quarter results before the start of trading on Friday.

Traders are also likely to keep an eye on the University of Michigan's preliminary report on consumer sentiment in the month of November.

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