- Stalling Markets? After rallying steadily since the election, the stock market has consolidated its gains in recent weeks. The Dow Jones Industrial Average has stitched together eight consecutive days of modest declines, while other averages have tilted between small gains and losses. We remain just off the all-time highs in major market averages, overall, and we view the sideways action in the market as healthy.
- Reality Check. President Trump saw his first major legislative defeat when GOP leaders pulled their bill to replace “Obamacare” with a GOP alternative. House Republicans proved factious, unable to coalesce around a bill that had no Democratic support. In the end, the conservative House Freedom Caucus received the blame for the bill’s defeat. Health care reform is dead, for now.
- Moving On. While the debate over health care played out to an uninspiring end, Administration hopes for tax reform remain alive. However, without any incremental sources of revenue from a potential border-adjustment taxes and savings from health reform, the eventual scope of tax reform probably got a little smaller. Ironically, the failed health care battle may help the chances of infrastructure spending bill – something that has more support among Democrats – as President Trump may seek to build a more bipartisan coalition.
- Cautious Fed. The Federal Reserve raised the Fed Funds target rate by 0.25%, only the third rate hike since December 2015, to a range of 0.75% – 1.00%. While acknowledging the improving economy, Chairwoman Janet Yellen’s tone remained somewhat dovish as she set expectations for a slow and steady rate normalization for the balance of the year.
- Growth Backdrop Still Supportive. The underlying economy remains in good shape. In fact, it was getting better before President Trump’s election, thanks partly to the vigor of the American economy, but also because of growth everywhere else. The domestic job market is firm, and wage pressures are growing. Housing numbers remain at strong levels. Optimism in Europe and China, too, is building, as growth trends continue to improve, and perceived risks are receding.
- Long-term optimistic, short-term cautious. We remain optimistic on the market over the longer term, but more cautious in the shorter-term. Conditions are leaning towards overbought, and we believe investor sentiment is becoming a little frothy. At present, the market’s upward trend remains in place, although we expect the gains to moderate, and perhaps reverse somewhat, in time.