U.S. stock futures fell, with the Standard & Poor’s 500 Index (CME:SPZ14) poised for a third day of losses, as a government crackdown on tax-saving mergers sent drugmakers with pending cross-border deals lower.
AbbVie Inc. slipped 4.8% after the Treasury Department disclosed plans to limit tax-driven deals. Abbott Laboratories and Medtronic Inc. each fell 3.8%. Alibaba Group Holding Ltd. lost 1.8%, indicating the Chinese e- commerce company will fall on its third day of trading. Alibaba shareholder Yahoo! Inc. retreated 1.8%. Nasdaq 100 Index futures dropped 0.4%.
Contracts on the S&P 500 expiring in December lost 0.4% to 1,978.80 at 8:38 a.m. in New York. Contracts on the Dow Jones Industrial Average fell 64 points, or 0.4%, to 17,035.
The equity benchmark gauge fell the most in more than six weeks yesterday, led by a decline among small companies, as sales of existing homes slipped and China’s finance minister damped stimulus hopes.
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.
The S&P 500 reached a record last week as the Federal Reserve maintained a commitment to keep interest rates near zero for a considerable time after completing asset purchases in October.
Data at 9:45 a.m. New York time may show U.S. manufacturing output accelerated this month, economists forecast. The Markit Economics preliminary September index probably rose to 58, from 57.9 in August, according to the median projection. Readings exceeding 50 indicate expansion.
Investors are also watching developments in the Middle East, where 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, the Pentagon said in an e-mailed statement. 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.”
AbbVie lost 4.8% to $55.87. The company agreed in July to buy Dublin-based Shire Plc in a 32 billion pound ($52.4 billion) deal where it planned to move its legal address abroad to lower its taxes.
Mylan Inc. slipped 1.7% to $45.75, while Abbott declined 3.8% to $41.76. 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. dropped 1.5%. The company agreed at the end of August to buy Canada-based Tim Hortons Inc.
Alibaba fell 1.8% to $88.26. The company soared 38% on its trading debut on Sept. 19 and fell 4.3% yesterday. Yahoo retreated 1.8% to $37.97.
Ascena Retail Group Inc., the owner of of the Dressbarn and Lane Bryant clothing chains, tumbled 12% to $14.60. Earnings per share for its 2015 financial year will be 90 cents to $1, the company said yesterday. Analysts projected $1.24 on average.
Salix Pharmaceuticals Ltd. jumped 8% to $172.57. Allergan Inc. is in talks to acquire the company to help it fend off a hostile takeover offer from Valeant Pharmaceuticals International Inc., people with knowledge of the matter said.
Herbalife Ltd. climbed 2% to $41. The stock slumped 10% yesterday amid speculation that Carl Icahn was selling shares in the company. The investor hadn’t sold a stake, nor an option position, Fox Business Network’s Charles Gasparino said, citing people he didn’t name.
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