Cooler heads are prevailing on Wall Street.
When stocks suffered their first 1 percent decline in over 100 days Tuesday, the consensus among traders and analysts was that the ‘Trump Trade’ that had sent markets soaring was coming to an end. Financial stocks, like Goldman Sachs and Bank of America, led the sell off as skittish investors worried that signs of trouble for the American Health Care Act could mean that Trump wouldn’t be able to enact the fiscal and regulatory reforms he had campaigned on.
Just two-days later this narrative is in tatters. Stocks were mostly up Wednesday, with tech stocks showing surprising strength. Thursday morning trading pushed all the major indexes up. The financial stocks that had seen so much selling pressure earlier in the week are now leading the market up.
Yet the Obamacare replacement bill seems no more likely to pass than it did on Tuesday. What changed? Wall Street appears to be realizing that a failure to get the health care bill passed, particularly a failure driven by concerns of the most conservative members of the Republican caucus on Capitol Hill, probably doesn’t indicate that tax and regulatory reform are dead.
Jeff Cox at CNBC quotes Citigroup economist Dana Peterson’s note explaining this.
“Passage of the American Health Care Act vote is relevant for tax reform, but likely not in the way that markets and many observers may believe,” Peterson writes. “A failure of President Trump and House Republicans to deliver on this one of two stated objectives this year would not signal the death knell for fiscal stimulus, in our view.”
Goldman Sachs’ Alec Phillips sounded a similar note, Cox reports.
“There is likely to be much broader support for tax cuts than there is for health legislation,” Phillips writes. “Even if the health bill fails, we would continue to believe the odds of tax legislation passing by early 2018 are high.”