Stocks retreat from record highs as House passes tax bill

NEW YORK — After big gains over the last two days, U.S. stocks declined Tuesday after the House of Representative approved the Republican-backed tax bill, which would lower corporate tax rates.

Big technology companies gave up some of their recent gains, and so did smaller companies, which have surged because investors feel they will be major beneficiaries of the reduced corporate tax rate. High-dividend stocks dropped as bond yields rose. U.S. indexes had jumped to record highs over the last two days as Republicans appeared to shore up enough support to make sure the bill passes.

Investors like that because it would boost corporate profits and likely raise stock prices along with it. The bill would initially cut taxes for most Americans but by 2027 would increase tax bills for most.

While stocks weren’t doing much Tuesday, bond prices fell. The yield on the 10-year Treasury note rose to its highest price in more than a month, to 2.45 per cent from 2.39 per cent late Monday.

Invesco Global Market Strategist Kristina Hooper said two factors are sending bond yields higher: investors are selling bonds to buy stocks as the tax bill appears likely to pass, and they also feel the bill may contribute to inflation.

“There’s this expectation that we’ll see companies save money on taxes, to put it simply, and spend more in other areas,” she said. Investors think “it’s going to have an impact on employment, wages, and therefore inflation,” she said.

The Standard & Poor’s 500 index lost 8.69 points, or 0.3 per cent, to 2,681.47. The Dow Jones industrial average shed 37.45 points, or 0.2 per cent, to 24,754.75. The Nasdaq composite gave up 30.91 points, or 0.4 per cent, to 6,963.85. The Russell 2000 index of smaller-company stocks fell 12.17 points, or 0.8 per cent, to 1,536.75. It climbed almost 3 per cent over the previous two days.

Apple fell $1.88, or 1.1 per cent, to $174.54 after it closed at a new high on Monday. Visa lost $1.41, or 1.2 per cent, to $112.14.

The tax bill passed through the House, largely along party lines ahead of a Senate vote scheduled for Tuesday night. The $1.5 trillion package would cut the corporate tax rate to 21 per cent from 35 per cent, and would slash taxes for the wealthy, with smaller cuts for middle-and low-income families.

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