U.S. equities drifted lower on Tuesday after hopes of a Senate vote on “Trumpcare” collapsed amid Republican infighting and stalwart resistance from Democrats looking to defend Obamacare. Moreover, three Senate Republicans have said they will not support a straight repeal vote to scrap Obamacare without a replacement plan.
And while President Donald Trump said on Twitter that he is committed to healthcare reform — but that we’ll now have to wait for Obamacare to fail first, in his words, to up the political pressure — Wall Street was clearly disappointed that a major reason for the market’s post-election ebullience has disappeared. This is important since rising healthcare and insurance costs is widely believed to be a reason why wage growth has been so pitiful.
In the end, the Dow Jones Industrial Average lost 0.3%, the S&P 500 gained a fraction, the Nasdaq Composite gained 0.5% and the Russell 2000 lost 0.3%. Treasury bonds were stronger, the dollar was under pressure, gold gained 0.7% and crude oil added 0.8%.
Click to Enlarge Breadth was negative on the NYSE with decliners outpacing advancers 1.1 to 1. Volume was light again, at just 74.5% of the 30-day average.
Technology stocks led the way with a 0.5% gain while telecoms were the laggards, down 1%.
Netflix, Inc. (NASDAQ:NFLX) gained 13.5% after reporting solid user growth metrics after the close on Monday, with total adds beating estimates by around 62%. Johnson & Johnson (NYSE:JNJ) gained 1.4% after a second-quarter earnings beat.
On the downside, Harley-Davidson Inc (NYSE:HOG) fell 5.9% after reporting a Q2 earnings beat as investors focused on light revenues. Management also cut full year shipment and margin guidance citing industry challenges and supply/demand imbalance. Chipotle Mexican Grill, Inc. (NYSE:CMG) fell 4.3% on reports a Virginia location closed because of sick customers, bringing back norovirus headlines. And Goldman Sachs Group Inc (NYSE:GS) fell 2.6% despite a big earnings beat as investors focused on disappointing results from its fixed income, currencies, and commodities trading.
Conclusion
Click to Enlarge Today’s decline represented the first major selling pressure since the first week of July, potentially marking the end of an extremely quiet, drama-free run for the bulls. Stocks have yet to suffer a pullback since Election Day, predicated on hopes President Trump and the Republicans in Congress would reinvigorate the economy via tax cuts, healthcare reforms, deregulation and infrastructure spending.
If nothing could be done on Obamacare, after a multitude of showmanship votes against it when President Obama was still in the White House, should we really expect action on issues like the border wall and corporate taxes?
Ominously, market-derived inflation expectations (shown above) are rolling over again after a multiweek rally. Bond traders have been much more in sync with economic reality vs. the perennial optimists in the stock market, with economic growth expectations peaking in March and sliding into a low in late June.
With Trump back from a number of overseas trips, he cannot shake the focus on his floundering domestic agenda. And that could be a drag on stocks as the bulls are forced to acknowledge the political gridlock in the midst of the Q2 earnings season and the specter of “quantitative tightening” by the Federal Reserve as soon as September.
Today’s Trading Landscape
Check out Serge Berger’s Trade of the Day for July 19.
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
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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.
