By Joseph Ciolli
U.S. stocks fluctuated, after the Standard & Poor’s 500 Index fell the most in six weeks, as small-cap and Internet shares rebounded while drugmakers slipped amid a crackdown on tax-saving mergers.
Expedia Inc. and LinkedIn Corp. each added 1.3 percent to pace gains in the Dow Jones Internet Composite Index. Medtronic Inc. and Mylan Inc. slid at least 1.6 percent after the Treasury Department disclosed plans to limit tax-driven deals. Alibaba Group Holding Ltd. lost 1.9 percent on its third day of trading.
The S&P 500 (SPX) rose less than 0.1 percent to 1,994.79 at 10:25 a.m. in New York. The Dow Jones Industrial Average fell 6.96 points, or less than 0.1 percent, to 17,165.72. The Russell 2000 Index climbed 0.2 percent after its biggest decline since July. Trading in S&P 500 stocks was 29 percent above the 30-day average at this time of day.
“We’re really at a crossroads in terms of what direction we’ll take,” Bill Schultz, who oversees $1.2 billion as chief investment officer at McQueen, Ball & Associates in Bethlehem, Pennsylvania, said in a phone interview. “What’s going to be the impetus to get us going higher, or to see a correction? The market has gotten a little bit soft here and it needs to get something going. Right now it just doesn’t have that.”
The S&P 500 fell 0.8 percent yesterday in a second day of losses since closing at a record. Small companies led the selloff, with the Russell 2000 sliding 1.5 percent.
Data today showed the Markit Economics preliminary index of U.S. manufacturing held at a more than four-year high of 57.9 in September. A reading above 50 for the purchasing managers’ measure indicates expansion.
The Treasury’s new rules on inversions apply to deals that close starting yesterday. The changes will have the biggest effect on the eight U.S. companies with pending inversions, including Medtronic and AbbVie, which plan the two largest such deals in U.S. history.
The rules include a prohibition on “hopscotch” loans that let companies access foreign cash without paying U.S. taxes. They also curb actions that companies can use to make such transactions qualify for favorable tax treatment.
“People are concerned that some of the froth in the market will decrease with lower prospect for larger deals,” John Carey, a Boston-based fund manager at Pioneer Investment Management Inc., which oversees about $230 billion, said in a phone interview. “That’s affecting some specific stocks, particularly health care.”
Investors are also watching developments in the Middle East, where airstrikes against the militant Khorasan Group in Syria were prompted by plans for an “imminent” terror attack on U.S. soil, the Pentagon said.
The U.S. and Arab allies Saudi Arabia, Jordan, the United Arab Emirates, Qatar and Bahrain launched a series of airstrikes against Islamic State positions in Syria along the Iraqi border. Meanwhile, the Israeli army said it shot down a Syrian fighter jet after it penetrated Israeli air space over the Golan Heights.
“There are a lot of geopolitical worries going around,” said William Hobbs, head of equity strategy at Barclays Plc’s wealth-management unit in London. “The Middle Eastern situation feels like it’s not going to go away very quickly. The Islamic State is a significant and very organized military threat.”
The Chicago Board Options Exchange Volatility Index (VIX), the gauge known as the VIX, increased 1.1 percent to 13.84. The gauge lost 29 percent last month, the biggest drop in almost three years.
Six of the 10 main S&P 500 groups retreated, with producers of consumer staples sliding 0.4 percent for the biggest decline. Health-care companies lost 0.2 percent. Pfizer Inc. lost 0.7 percent for the steepest drop in the Dow.
AbbVie Inc. fell 1.3 percent to $57.96. The company agreed in July to buy Dublin-based Shire Plc (SHP) in a 32 billion pound ($52.4 billion) deal where it planned to move its legal address abroad to lower its taxes.
Medtronic fell 2.3 percent to $64.45. Covidien Plc, the medical supplies company that the U.S. company is trying to buy, lost 2 percent to $88.59.
Mylan Inc. slipped 1.6 percent to $45.81, while Abbott Laboratories declined 0.8 percent to $43.07. Mylan said in July it agreed to buy Abbott’s generic drug business in developed markets and would form a new company incorporated in the Netherlands to cut taxes.
Burger King Worldwide Inc. slid 0.5 percent to $30.91. The company agreed at the end of August to buy Canada-based Tim Hortons Inc.
Alibaba fell 1.9 percent to $88.24. The company soared 38 percent on its trading debut on Sept. 19 and fell 4.3 percent yesterday.