The Inverse Trump Trade

By Jared Dillian

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.

What happened?

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.

Is there?

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.

Continue reading The Inverse Trump Trade

Tapping the Breaks?

By Tim Knight

Since it seems the fate of the free world depends on this stupid healthcare vote, let’s talk about something – ANYTHING – else!

Below is the front month of crude oil. As much as I’d like it to plunge into the abyss, what I “like” doesn’t have much say-so in market direction. It seems to me that the commodity is steadying itself at the trendline and could be preparing for a turnaround back to major resistance at about $52.30 or so. Just a thought.

0324-crude

For equities in general, though, I would simply offer this headline on ZH that just came up:

0324-gart

The Trumpcare Vote: Previewing Thursday’s Big Event

By Heisenberg

Needless to say, the focus Thursday will be on the GOP proposal to repeal and replace the ACA.

Why do we care so much about this, you ask? Well, for one thing it represents a dubious attempt to replace one thing that isn’t working so well with something that won’t work at all. Which is funny – right up until you realize that it’s about healthcare. So you know, people’s lives are on the line.

But aside from that, the healthcare debate is seen as a kind of microcosm of the broader effort to implement Trump’s agenda. ACA repeal is generally seen as a prerequisite for moving forward with tax reform and other things that matter for the economy and, by extension, for markets.

Indeed, Tuesday’s selloff was at least partially attributable to jitters around the healthcare debate and if this thing stalls, well, let’s just say that doesn’t bode well for tax cuts and fiscal stimulus.

“House Republican’s ACA repeal/replacement failure doesn’t automatically equate to tax reform failure, though defeat would doubtless delay efforts and cut chances for comprehensive tax overhaul,” FBR’s Edward Mills wrote in note out Wednesday. He sees three possible outcomes:

  • Congress approves healthcare bill within weeks, increasing tax reform chances in the coming year
  • House passes bill but Senate doesn’t, or approves bill with changes that can’t get back through the House; tax reform would still be alive, but would be heavier lift
  • House fails to pass a healthcare bill, raising serious questions about Congressional Republicans’ ability to govern

So with all of this in mind, consider the following more comprehensive preview from Goldman, which should help to frame the issue that will be making headlines throughout the day.

Continue reading The Trumpcare Vote: Previewing Thursday’s Big Event