Wall Street slips as tax uncertainty, tech losses weigh

(Reuters) – U.S. stock indexes slipped on Friday with major technology firms weighing the most, while uncertainty over higher corporate taxes and an upcoming Federal Reserve meeting kept traders to the sidelines.

FILE PHOTO: A street sign for Wall Street is seen outside of the New York Stock Exchange (NYSE) in New York City, New York, U.S., June 28, 2021. REUTERS/Andrew Kelly/File Photo

The Nasdaq was the worst performer among the main U.S. indexes in early trade, as a batch of strong economic readings encouraged investors to pivot into growth-exposed sectors and out of tech this week.

“(It was) a volatile week and a return to value outperformance as ‘buy the dip’ sentiments took hold, but not enough to rescind the recent market weakness,” said Louise Dudley, global equities portfolio manager at the international business of Federated Hermes.

Concerns that a potential hike in corporate taxes could eat into earnings also weighed on markets, as leading Democrats sought to raise the top tax rate on corporations to 26.5% from the current 21%.

“We anticipate large cap volatility as changes to U.S. corporate tax rates play a role going forward as the two sides negotiate, particularly for the ‘low tax’ sectors implicated such as tech and biotech, and companies with hefty international revenues,” Dudley added.

Focus is also on a meeting of the Federal Reserve next week, with investors debating if a batch of strong economic data this week could spur the bank into shortening its timeline for reducing monetary stimulus.

Thursday’s data showing an unexpected rise in retail sales came on the heels of a steady factory activity reading and a cooling in inflation, suggesting the U.S. economic recovery was resilient despite a recent rise in cases of the Delta COVID-19 variant.

Treasury yields also rose on the data, indicating increased optimism over the economy as investors sold safe haven bonds.

At 09:56 am ET the Dow Jones Industrial Average fell 106.41 points, or 0.31% , to 34,644.91, the S&P 500 lost 23.35 points, or 0.52 %, to 4,450.40 and the Nasdaq Composite lost 82.92 points, or 0.55 %, to 15,099.00.

The three major indexes were headed for small weekly gains, but were tracking lower for the month due to seasonally weaker trends in September.

Nasdaq’a monthly losses were the lowest as investors had initially shifted to sectors more resilient to economic disruptions from the pandemic. This trade, however, could unwind in the coming weeks.

The simultaneous expiration of stock options, stock index futures and index options contracts later in the day, known as triple witching, is also expected to cause volatility through the trading session.

While the phenomenon is not new, recent growth in options trading volume and increased awareness of this dynamic has resulted in higher volatility during expirations this year.

Among other movers, Invesco Ltd rose 5% on reports that the investment management firm was in talks to merge with peer State Street Corp’s asset-management business. State Street shares fell slightly.

Declining issues outnumbered advancers by a 1.5-to-1 ratio on the NYSE and by about a 1.2-to-1 ratio on the Nasdaq.

The S&P 500 posted 6 new 52-week highs and 2 new lows while the Nasdaq recorded 51 new highs and 36 new lows.

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