Dow Sets Another Record but Finishes Well Off Its Highs

By Christopher Whittall and Akane Otani Features Dow Jones Newswires

The Dow Jones Industrial Average jumped Monday and finished at another record high after the Senate passed a tax bill, while declines in shares of technology companies weighed on the S&P 500 and Nasdaq Composite.

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Investors also dialed back on assets that many consider havens, such as U.S. Treasurys and gold, while lifting the dollar.

The Senate passed revisions to the U.S. tax code Saturday after Republicans overcame internal divisions, moving one step closer to pushing through $1.4 trillion in tax cuts. The House and Senate still need to reconcile competing versions of the tax plan, something GOP leaders hope to do by Christmas.

Cuts to the corporate tax rate could boost earnings growth and help the long U.S. stock rally keep going, investors and analysts say.

"Obviously, for corporates, it's a windfall," said Ronald Temple, head of U.S. equity at Lazard Asset Management. "It's unlikely to materially change the growth trajectory, but it is likely to materially change earnings growth."

The Dow industrials rose 58.5 points, or 0.2%, to 24290.05, a record close but well off its intraday high of 24534. The S&P 500 fell 0.1%, after being up much of the day, and the Nasdaq Composite slipped 1.1% as technology stocks pulled back.

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Banks, which some analysts say could be among the biggest beneficiaries of a tax cut, rallied, with the KBW Nasdaq Bank Index of large U.S. lenders rising 2.2% for its fifth consecutive session of gains.

One sector that lagged behind in Monday's stock rally: technology. Shares of technology companies in the S&P 500 slid 1.9%, posting the steepest daily loss of the broad index's 11 sectors.

While the Republican plan to cut corporate tax rates should lift earnings growth broadly, some analysts have said it could also spur a shift out of stocks that have outperformed this year into relative underperformers. Those analysts believe technology stocks in the S&P 500, which have nearly doubled the broad index's gains this year, are vulnerable to a pullback.

Meanwhile, the WSJ Dollar Index, a measure of the dollar against a basket of 16 currencies, gained 0.2%, while government bond prices fell, sending the yield on the benchmark 10-year U.S. Treasury note to 2.385%, according to Tradeweb, from 2.363% on Friday. Yields rise as prices fall.

A tax overhaul could help boost economic growth, lifting the U.S. dollar. But it also could send bond yields higher, analysts say, in part by expanding the federal budget deficit, which would push the government to sell more bonds.

Other so-called havens retreated. Gold for December delivery fell 0.4% to $1,274.30 an ounce.

With U.S. stock markets near record highs, some investors say they see greater value in other regions. Jeroen Blokland, a portfolio manager at Dutch asset manager Robeco, said that given economic momentum is already building, the Senate tax bill "is another sign for investors that this rally can continue for quite some time even though valuations are stretched."

Still, those high valuations in the U.S. have led him to favor European and Japanese stocks.

"Japan is doing great, and Europe has some catching up to do," Mr. Blokland said.

The Stoxx Europe 600 climbed 0.9% Monday, lifted by broad gains across sectors.

Some Asia-Pacific stock markets struggled after pockets of selling last week, notably in technology. Japan's Nikkei Stock Average closed down 0.5% as tech stocks again came under pressure.

But other markets ended higher. After declining last week, Korea's Kopsi Composite Index added 1.1%, and Hong Kong's Hang Seng Index edged up 0.2%.

Write to Christopher Whittall at christopher.whittall@wsj.com and Akane Otani at akane.otani@wsj.com

(END) Dow Jones Newswires

December 04, 2017 16:47 ET (21:47 GMT)