U.S. equities recovered from a nasty selloff at the open to close in on the unchanged line by the closing bell, but the Dow Jones Industrial Average still managed to extend its losing streak to eight days — the worst for the index since 2011.
The main catalyst was ongoing concern about the implementation of President Trump’s agenda — the main reason stocks have soared since Election Day — in the wake of a failure to push healthcare reform legislation through the House of Representatives.
Attention now turns to tax reform, which is set to be equally if not even more contentious than healthcare, because of biting issues surrounding the need for spending cuts to offset the cost of proposed tax cuts.
In the end, the Dow Jones lost 0.2%, the S&P 500 lost 0.1%, the Nasdaq Composite gained 0.2% and the Russell 2000 gained 0.2%. Treasury bonds were mostly stronger, the dollar was under pressure, gold gained 0.6% and oil was weaker down 0.5%. That boosted the ProShares UltraShort Crude Oil (NYSEARCA:SCO) by 1.1% to bring its total gain to nearly 30%.
Healthcare stocks led the way with a gain of 0.4% while telecom was the laggard, down 0.7%. Morgan Stanley (NYSE:MS) lost 2.1% on broad bank/investment bank weakness as well as a downgrade from Compass Point on competitive pressures and concerns the company is over-earnings in its fixed-income, currencies, and commodities business.
Looking ahead, the calendar is relatively light as the first quarter comes to a close. Friday will feature an update on personal income and consumption as well as another indicator on inflation and consumer sentiment.
Turning back to the chances of tax reform, it’s important to remember a big reason the Trumpcare effort failed was very negative coverage of an analysis of its budget and coverage implications by the bi-partisan Congressional Budget Office. Once it showed a drop in coverage levels, all the political momentum was lost.
Similarly, Trump’s current tax cut plans — even with a generous “dynamic scoring” boost to future GDP growth — are expected to result in an major increase in the national debt. The hard-right “Freedom Caucus” in the House that torpedoed the Trumpcare bill are very likely to resist such a fiscally irresponsible move without offsetting spending cuts and revenue hikes.
This, in turn, will unravel more cans of political worms. Spending cuts — already proposed in areas such as housing support — will be challenged hard by Democrats. And revenue hikes have focused on a possible “border adjustment tax” on imports that retailers are rallying against.
Add it all up, and it’s very likely that these big issues won’t be resolved until the very end of the year or into 2018 if at all. And let’s not forget that the debt limit will become an issue as we approach October, heightening the stakes.
Trump campaigned on a pledge to “drain the swamp” in Washington and reform areas that, admittedly, need reform while taking on the special interests. Instead, at least for now, it looks like the swamp drained him instead.
Anthony Mirhaydari is founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers. Redeem by clicking the links above.