A fierce
battle over Trumpcare within the Republican Party is causing Wall Street to
sharply reassess its optimism about Donald Trump’s economic policy agenda, as
evidenced by the sharpest sell off in stocks this year.
For the
first time since October 11, 2016, both the Dow and the S&P 500 closed down
by at least 1%.
This
rethinking holds ominous implications for a market that has probed repeated new
highs based on Trump’s policy promises, in particular a stimulus to the economy
from a combination of tax cuts and infrastructure spending.
Now that
healthcare has turned into such a debacle that even the country’s ruling party
and its president cannot agree on even its basic framework, those second and
third parts of Trump’s legislative agenda are likely to be weakened, delayed
and in some cases, foregone.
Goldman
Sachs Economist Alec Phillips said in a recent podcast he’s telling clients to
tamp down their enthusiasm.
"If you
look at the chronology of this, right after the election, there was a
discussion about this was going to be a 2017 tax cut," Phillips said.
"Now it’s clearly a 2018 tax cut. Who knows, it could be a 2018-2019 story
ultimately."
As for
infrastructure, "what everyone was expecting, we might get a little bit of
that but that’s not what’s going to be driving things."
Trump has in
fact publicly admitted he would have preferred to start his reform agenda with
tax cuts now that he realizes what a behemoth healthcare can be. As CNBC’s Carl Quintanilla aptly put it,
Trump has made the issue of healthcare sound like "the vegetables you need
to eat before you get to the good stuff."
The message
for Wall Street’s hyperbulls? Simmer down.
"The
complexity of the problems clearly suggests [tax cuts] will not come before
2018 at the earliest, and neither will any of the planned increases in
spending," said Steven Ricchiuto, chief US economist at Mizuho, in a
research note.
(Business
Insider)
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