The “Trump Rally” hit what many pundits are calling a “speed bump” yesterday. While a pullback has been expected by just about everyone in the game, the speed at which the vehicle hit the bump still managed to send passengers flying in all directions. The Dow fell more than 235 points, notching the first 1% decline since October 11. And in short, the market experienced the worst day of calendar year 2017 so far.
Although there were several issues in play yesterday, at the forefront was the worry that the pro-growth/business policies of the Trump administration could get sidetracked by politics in Washington.
If you will recall, the primary driver of the “Trump Bump,” which has carried the S&P 500 up nearly 15% from the November low through March 1, has been the expectation that Trump and the Republican-controlled Congress would focus on tax reform, cutting regulations, and stimulating the economy.
However, as I’ve written a time or two, at some point, the expectations of better days ahead would need to become economic reality and any “bumps in the road” could become problematic for stock market bulls if the policies were delayed. And the bottom line is this is exactly what traders and their computers were fretting about yesterday.
The immediate fear is that House Republicans may not be able to gather the votes they need this week to dismantle Obamacare. The “repeal and replace” process is slated to begin on Thursday but talk of infighting within the GOP about the makeup of the bill is causing consternation.
The problem is that Republicans have put the elimination of the Affordable Care Act in front of the pro-growth items on the Trump agenda such as tax reform and stimulus spending plans. Cutting to the chase, this means that tax reform can’t be addressed until the healthcare issue is taken care of.
Prior to Tuesday, the expectation in the market was for tax reform to be addressed late in Q3. But with the Freedom Caucus talking about blocking passage of the GOP healthcare bill until/unless they get what they want, well, traders fear that the issue of tax reform may be pushed farther down the road.
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