Wall Street no longer believes President Trump's agenda is
a slam dunk.
The Dow fell on Monday
for the eighth day in a row, its longest losing streak since 2011.
Trump's
stunning failure to repeal and replace Obamacare spooked
investors, sending the Dow sinking as many as 184 points in the
first few minutes of trading. But the index rebounded from those early losses,
closing down by 46 points. The Nasdaq eked out a
gain of 0.1%.
The recent
market retreat is a reflection of rising fears
on Wall Street that Trump's bold promises of sweeping tax
reform, regulatory relief and infrastructure spending is in doubt. Investors
have begun to contemplate that the Trump agenda will be delayed, watered down
or even derailed.
"Global
financial markets are in a risk off mode after the political spectacle that
unfolded last week on Capitol Hill," analysts at Rabobank wrote in a report
on Monday.
CNNMoney's Fear &
Greed Index briefly tipped into "extreme fear."
That's a dramatic reversal from "extreme greed" shortly after Trump
took office. The Dow is on track for its first monthly decline since October
and worst month since January 2016.
Big banks,
previously one of the hottest
pockets of the market, suffered the worst losses on Monday. Morgan
Stanley (MS) fell
over 2%, while Goldman Sachs (GS) and Bank
of America (BAC)shed
over 1% apiece.
The concern is
that if Trump wasn't able
to replace Obamacare, a law that Republicans almost universally
detest, then how will he tackle even more complex undertakings? Trump has
pledged to quickly pivot to tax reform, but that could be even more
challenging, especially given the serious GOP fractures exposed by
the health care defeat.
"If the
repeal and replace was any indication, tax code reform is going to have a
really hard time finding any traction. It's not something that can take place
overnight," said Peter Kenny, an independent market analyst and founder of
Kenny's Commentary.
That's a problem
because Wall Street had been banking on the "massive" tax cuts that
Trump promised by August. The Dow zoomed as much as 2,800 points since the
election on these hopes. But because the fundamentals (earnings, economic
growth) haven't really improved, stocks have
become expensive.
"Has the
stock market priced in the perfect scenario that is becoming clear that we just
won't get?" asked Peter Boockvar, chief market analyst at The Lindsey
Group.
"A watered
down Trump agenda with no changes of substance to health care and a more modest
tax reform bill is NOT what I believe is currently priced in to stocks,"
Boockvar wrote in a report to clients.
Of course, the
stock market has had enormous gains since Trump's victory, and a pullback is
long overdue. A cool-off period is a healthy development for the Trump rally,
most experts would agree.
It's also worth
noting that while the Dow is on track for an eighth day of declines, it hasn't
descended all that much. The Dow is down less than 2% during the slump and
remains less than 600 points away from the all-time high
set on March 1 following Trump's well-received speech to
Congress.
By comparison, the
last time the Dow fell eight days in a row back in August 2011 the index had
shed an alarming 7% of its value.
Michael Block,
chief market strategist at Rhino Trading, joked that the recent selloff is due
to the "shocking reality that President Trump can't snap his fingers and
get business and stock friendly policies enacted."
Block said
"we are seeing the knee jerk reaction to that ideal being quashed."
So what happens
next?
Wall Street will
be looking for signs that the Trump agenda is not stalled.
While the health
care failure is "undoubtedly a negative signal" for the rest of
Trump's agenda, it is "far from a death knell," according to Isaac
Boltansky, a policy analyst at Compass Point.
Still, he said the
Obamacare saga signals a final tax reform deal that is "less sweeping --
both in scale and scope -- than the market is currently reflecting."
Wall Street hasn't
been helped lately by renewed trouble in
the oil patch. Crude retreated another 1.5% to just over $47 a barrel
on Monday amid continued concerns about resurgent
U.S. shale production.
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