Daily Times

NEW YORK: The Trump Trade could start looking more like a Trump Tantrum if the new US administration’s healthcare bill stalls in Congress, prompting worries on Wall Street about tax cuts and other measures aimed at promoting economic growth.

Investors are dialing back hopes that US President Donald Trump will swiftly enact his agenda, with a Thursday vote on a healthcare bill a litmus test which could give stock investors another reason to sell.

“If the vote doesn’t pass, or is postponed, it will cast a lot of doubt on the Trump trades,” said the influential bond investor Jeffrey Gundlach, chief executive at DoubleLine Capital.

US stocks rallied after the November presidential election, with the S&P 500 posting a string of record highs up to earlier this month, on bets that the pro-growth Trump agenda would be quickly pushed by a Republican Party with majorities in both chambers of Congress.

The S&P 500 ended slightly higher on Wednesday, the day before a floor vote on Trump’s healthcare proposal scheduled in the House of Representatives.

On Tuesday, stocks had the biggest one-day drop since before Trump won the election, on concerns about opposition to the bill.

Investors extrapolated that a stalling bill could mean uphill battles for other Trump proposals. Trump and Republican congressional leaders appeared to be losing the battle to get enough support to pass it.

Any hint of further trouble for Trump’s agenda, especially his proposed tax cut, could precipitate a stock market correction, said Byron Wien, veteran investor and vice chairman of Blackstone Advisory Partners.

“The fact that they are having trouble with (healthcare repeal) casts a shadow over the tax cut and the tax cut was supposed to be the principal fiscal stimulus for the improvement in real GDP,” Wien said. “Without that improvement in GDP, earnings aren’t going to be there and the market is vulnerable.”

Strategists have been cautioning for weeks that markets are pricing in a scenario where nothing goes wrong with Trump’s agenda. Investors are paying $18.10 for every dollar in earnings expected on the S&P 500 over the next 12 months, near the most expensive US stocks have been since 2004.

“This is really about the fact that the market is pricing in too much certainty on a number of accounts,” said Julian Emanuel, executive director of US equity and derivatives strategy at UBS Securities. “Even if you got the positive vote, there’s still the residual knowledge that the agenda will be difficult to get through the Senate.”

While investors and strategists have said they do not see an immediate threat to the eight-year-old bull market, there is a risk of a 5-to-10 percent drop. Only a bear market -a 20 percent decline- would put an end to the bull.