The Market got rattled a bit this week. It is certainly used to Republicans and Democrats disagreeing. But the internal discord within the Republican Party on Health Care is raising questions again about anything getting done in Washington.
The thinking is that if the bill failed, the likelihood for tax reform would decline, which could also drag down the chances for financial reform. Since the bill was pulled in the final hour, who knows where this goes. Health Care is such a complicated issue with no easy solution. Unfortunately, Congressional divide also increases the chances of a government shutdown in April and a messy fight over raising the debt ceiling in the Fall. This was a big test. It’s no wonder Congress began the year with just a 19% approval rating.
The rally since November has been driven by the strengthening US economy and the acceleration of Corporate earnings, both of which are still firmly in place. Tax reform is a key ingredient here though, so the Market stall makes sense. Stocks have been digesting the big move and we see that continuing a little longer before running to new highs again. As stated at our Outlook events in January, we felt the Market was going to give the new administration roughly 4 months to implement the pro-growth policies. It’s clearly paying very close attention.
An important factor this week: international markets barely budged. The catch-up play continues and many foreign indexes are holding their highs for the year while our Markets consolidate. That’s a material positive and part of the reason that we rotated money back into international markets for the first time in years. The Bond Market is functioning well too. There’s a strong foundation under this Market. But we expect more choppy price action ahead.
Have a nice weekend. We’ll be back, dark and early on Monday.