Big Pharma leads stocks lower on Tuesday

Stocks were down again on Tuesday, led by the stocks of some big pharmaceutical companies in response to the U.S. Treasury’s plan to limit so-called tax inversion deals.

But the decline was far more broad-based than the pharma sector, with about two stocks down for every one that rose. The S&P 500 fell 0.6%, with all 10 of its sectors ending in the red. The Dow Jones Industrial Average lost 0.7%, with 29 of its 30 components falling; J.P. Morgan Chase, the lone gainer in the group, rose three cents for a modest 0.1% gain. NASDAQ fell 0.4%, with two-thirds of the index’s 100 biggest stocks ending lower. But bond prices were higher. The 10-year Treasury note rose about a third of a point to lower its yield four basis points to 2.53%, its lowest closing level in two weeks.

After the markets closed on Monday, the Treasury announced several executive actions designed to limit corporate mergers done mainly to avoid U.S. taxes. Many of the deals done so far have taken place in the pharma industry, many of them involving European-based companies. Among the biggest losers on Tuesday were AstraZeneca (-4.7%), Sanofi (-2.7%), Shire (-2.2%), and Abbott Labs (-2.1%). Outside the pharma sector, investors continued to take profits in Alibaba, which lost 3% after falling more than 4% on Monday. The stock jumped 38% on its first day of trading last Friday following its IPO. Apple rose 1.6% after announcing on Monday that it sold more than 10 million units of its new iPhone 6 model over the weekend.

European stocks were hit the hardest on Tuesday as a new report showed euro zone growth continuing to slow this month, as well as in reaction to the Treasury moves. All of the major national stock indexes were down by 1.3% or more, with the broad-based Stoxx Europe 600 down 1.4%. Markit Economics said its composite output index for the euro zone fell from 52.5 in August to 52.3 in September. While only a modest decline, it dropped the index to its lowest level this year, albeit still above the 50 level indicating expansion. Separate indexes for the services and manufacturing sectors were both lower, with the latter index hitting a 14-month low of 50.5. On a positive note, figures for Germany, the biggest economy in the currency zone, were mostly higher except in the manufacturing sector, which hit a 15-month low.

Asian stocks were mostly lower as a report showed a slight improvement in Chinese manufacturing. The Shanghai composite index rose 0.9% but Hong Kong’s Hang Seng index fell 0.5%, as did Korea’s KOSPI index. India’s Sensex dropped 1.6%. Japanese markets were closed for a holiday. HSBC’s manufacturing PMI for China rose modestly to 50.5 from 50.2 in August, beating expectations that called for a decline. However, that was slightly offset by a separate report from the private China Beige Book, which said the Chinese economy was stuck in “low gear.”

Reports/dates/facts/links worth paying attention to over the next week:

  1. September 24: New home sales (August).
  2. September 25: Durable goods orders (August); weekly unemployment claims.
  3. September 26: Second quarter GDP, first revision; University of Michigan consumer sentiment index (September).

Copyright © 2014 by Wright Investors’ Service, Inc. The views expressed in this blog reflect those of Wright Investors’ Service, Inc. and are subject to change. Statements and opinions therein are based on sources of information believed to be accurate and reliable, but Wright Investors’ Service, Inc. makes no representations or guarantees as to the accuracy or completeness thereof. These views should not be relied upon as investment advice.

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