During the 2016 campaign, the stock market was “with her” — when Hillary Clinton’s prospects improved, equities climbed. Summarizing the implications of the market’s behavior, one economist told Politico that a Trump victory would spur “major Brexit-style selling.”
Then the incompetent demagogue won. And investors remembered that what’s bad for the American republic is often quite good for their portfolios.
Specifically, Wall Street decided that Trump was all but certain to deliver a large tax cut to corporations — and business-friendly pushovers to America’s regulatory agencies — and that these two measures would (almost) certainly boost near-term profits (no matter how many Muslims the new president banned from the United States).
These convictions — combined with the already solid performance of the Obama economy — produced a sustained rally for equities. Entering Tuesday, the S&P 500 was up 6 percent in 2017.
By the time the closing bell struck, however, stocks had suffered their worst day since Donald Trump’s election. The Dow Jones fell around 240 points, while the S&P 500 dropped 1.2 percent. And Trump seems to be at least part of the reason why.
“With the health-care morass, the Trump effect is taking a little bit of a backseat in peoples’ minds,” said Steve Sosnick, an equity risk manager at Timber Hill LLC, told Bloomberg. “It feels like the market needs another catalyst. The catalysts had been coming largely from the Fed and the Trump effect. Something is spooking people.”
On Tuesday, the president and his party’s leadership warned recalcitrant conservatives that failure to pass Trumpcare would jeopardize tax reform. Many of those conservatives then said that they would oppose Trump’s bill anyway. And some on Wall Street got spooked.
Meanwhile, other investors are fretting that the House GOP’s approach to tax reform might hurt Walmart’s balance sheet: On Tuesday, GOP congressman Kevin Brady predicted that the border-adjustment tax — which would cut taxes on exporters and raise them on importers — would appear in the final version of his party’s corporate tax plan. Retail stocks proceeded to fall by nearly 2 percent.
There’s little reason to think that the GOP can’t cut taxes without repealing Obamacare. And it’s hard to imagine that the border-adjustment provision will survive the Senate.
Nonetheless, some investors are losing faith in Trump’s legislative prowess — and starting to worry that he won’t be able to redistribute as much income upward as they initially thought.