The first 100 days — wins, stalls and where things go from here
How tax reform could be impacted by the first 100 days.
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The new administration is closing in on its first 100 days. President Trump had promised to lead the most active first 100 days of any presidency in modern history … certainly since the action-packed days of FDR’s first three months.
With that in mind, a scorecard may very well be in order as the end of that period is upon us. And that scorecard is not just a measure of political success, but also an important marker for how the financial markets have behaved since the election, and whether or not the wins and losses, to date, could affect the financial futures of both Wall Street and Main Street.
The president can claim a signature achievement in nominating Judge Neil Gorsuch to the Supreme Court and getting him on the bench. However, in doing so, Senate Republicans had to trigger the “nuclear-option” in order to stop the Democratic filibuster.
In addition, the president has signed a series of Executive Orders designed to roll back regulations on businesses from coal mining to banking, but the orders have largely been symbolic; ordering reviews of existing regulations, as opposed to eliminating them entirely.
Also, a key promise that was expected to occur in the first 100 days of the presidency, the repeal and replacement of the Affordable Care Act, also known as Obamacare, has thus far stalled. Although the White House and Congress have applied the paddles to the American Health Care Act, its fate remains uncertain and that has an impact on the prospects for another prominent agenda item…tax reform.
The nearly $1 trillion in savings from repealing Obamacare is supposed to be used to help fund comprehensive tax reform. Absent those savings, financing what the president has called the biggest tax cut in history may prove difficult, at best. Coupled with a Border Adjustment Tax, within the tax plan itself, tax reform is more than just a bit uncertain as this tax is wildly unpopular among big retailers, importers, auto and airplane-makers and energy companies.
Tax reform was supposed to sail smoothly through the House and Senate, but the White House and GOP leaders in the House blew through a lot of political capital trying to move the health care act to the floor. When it failed on that front, the administration and House Speaker Paul Ryan essentially were left with a scorched earth policy that alienated Republicans on the right, and in the center. Further, Democrats who were steamrolled in the Senate over the Supreme Court nominee appear to be in no mood to cooperate on White House initiatives.
In addition to all of the domestic agenda items this administration has dealt with, the White House has encountered foreign policy problems that have commanded attention as well, from Damascus to Pyongyang to Putin’s Moscow.
The financial markets could, this week, prove very vulnerable if items from President Trump’s domestic agenda do not show signs of advancement.
The stock market has priced in the relatively swift passage of both health care and tax reform, while the bond market has expected these economic accelerants to speed economic growth and allow the Federal Reserve to normalize interest rate policy more quickly as fiscal policies begin to drive growth.
It may be unwise for long-term investors to trade these themes just yet, but traders, this week, may be well-advised to follow a long-time pattern on Wall Street to “sell in May and go away,” until the president starts to tally some actual victories, such as health care reform (that already is underway) and the recently announced tax reform legislation.
Buying bonds and shedding stock positions may very well be a good trade in the near-term. If the president starts to advance his agenda in more concrete ways, traders can jump back in. If he doesn’t, investors may need to get back out.
The views and opinions expressed in this article are solely those of the author and do not represent the view of MB Financial, its Board of Directors, employees or shareholders.