US stocks drop ahead of earnings; Allergan hit

Traders work on the floor of the New York Stock Exchange (NYSE) in New York.
Traders work on the floor of the New York Stock Exchange (NYSE) in New York. PHOTO: BLOOMBERG

NEW YORK (AFP) - Wall Street stocks dropped on Tuesday on worries about weak first-quarter earnings, as Allergan slumped on new US tax rules that threaten the drugmaker's takeover by Pfizer.

The Dow Jones Industrial Average fell 133.68 points (0.75 per cent) to 17,603.32.

The broad-based S&P 500 shed 20.96 (1.01 per cent) to 2,045.17, while the tech-rich Nasdaq Composite Index dropped 47.86 (0.98 per cent) to 4,843.93.

Companies in the S&P 500 are expected to see a 4.2 per cent drop in earnings for the first-quarter, according to S&P Capital IQ.

"Investors are in a wait-and-see mode as we prepare for the earnings season to evaluate whether the recovery we've seen from the February lows should be justified or whether stocks have gotten ahead of themselves," said David Levy, portfolio manager at Republic Wealth Advisors.

Dublin-based Allergan plummeted 14.8 per cent as the US Treasury announced new rules to discourage mergers between US and foreign businesses designed to sharply lower the US company's tax bill. Dow member Pfizer added 2.1 per cent.

Baker Hughes tumbled 5.1 per cent on reports that the US Justice Department will sue to block its takeover by fellow oil-services giant Halliburton on antitrust grounds. Halliburton advanced 1.2 per cent.

Dow member Disney lost 1.7 per cent after the surprise resignation of chief operating officer Thomas Staggs, who had been the leading candidate to replace chief executive Bob Iger. Topeka Capital Markets called the news "truly stunning" and predicted Iger's contract would be extended to assuage investors.

Valeant Pharmaceuticals International vaulted 10.0 percent after announcing that it completed an accounting review and would not need to make further revisions to its earnings.

Walgreens Boots Alliance fell 3.4 per cent after the pharmacy chain reported second-quarter sales of US$30.2 billion (S$41 billion), under the US$30.7 billion projected by analysts.

Banking shares were in retreat, with Bank of America shedding 2.4 percent, Citigroup 1.3 per cent and Wells Fargo 2 per cent.