The market dumped on Tuesday. For a good graphical representation, look at the three-day chart of the S&P 500 I keep on my desktop.
I like three day charts. If you want to know where you’re going, it’s good to know where you’ve been.
You can see a pretty radical change in price action from one day to the next.
The job of financial journalism is to try to explain the day-to-day variations in the stock market. Oftentimes, there is nothing to report—lots of randomness. This time, on the other hand, stocks went down hard—so there must be a story behind it.
As far as I can tell, the best explanation as to why stocks dumped on Tuesday is because it became increasingly unlikely that the “repeal and replace” of the Affordable Care Act would pass, because of a group of about 26 holdout Republican legislators.
For what it’s worth, I agree with the holdout legislators. The proposed law isn’t a repeal at all. It’s a collection of tweaks designed to get the original Obamacare working properly—along with a giant tax cut.
It is not the tax cut I disagree with. Tax cuts are great. But here’s the thing: if this doesn’t pass, the market doesn’t get the tax cut. And the market cares about tax cuts more.
Furthermore, if the ACA repeal doesn’t pass, it will cripple the Trump administration politically and delay a complete tax reform package even further, possibly into next year—if it happens at all.
Remember, the whole reason that the market ran up after the election was because Trump was this can-do businessman, capitalist president, who was going to cut corporate and marginal rates to the bone. That is looking less and less likely. Maybe even impossible.
I have been telling people (privately) that it was a big mistake for the Trump administration not to pursue tax reform first. Instead, we issued a couple of ham-handed executive orders that pissed everyone off and lost a lot of political capital, and then dove into the hornets’ nest of healthcare.
It’s odd—this group of people who were pretty smart about winning the election are turning out to be pretty dumb about legislative priorities.
Worse, both Trump and Mnuchin have said that people can use the stock market as a yardstick of the administration’s performance.