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So Tired of Waiting: Yesterday On Repeat as Health Bill Remains Center Stage

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March 24, 2017

(Friday Market Open) Yogi Berra once said, “It’s like déjà vu all over again.” It feels that way now as investors wait for a health care vote in Washington.

The vote — originally scheduled for Thursday — got put off until today, and it’s unclear when it might happen. Just like yesterday, the markets could be on edge until there’s some sort of resolution, but futures were trading a little higher, so there’s apparently some thought that this might get done. We’ll see if President Trump, the man who authored “The Art of The Deal,” can get a deal through Congress.

Generally, the feeling seems to be that failure to pass the bill might raise doubts about the president’s ability to push through other key elements of his agenda, including those like tax reform and infrastructure that potentially could have positive effects on stocks. Many investors are impatient waiting for these plans, which the administration said would have to come after health care. Doubts about tax and infrastructure policy success would probably not go down well in the markets, which built their post-election rally in part around those promises.

The health care sector fell slightly on Thursday ahead of the vote (see chart). Weakness was most evident in the health care providers and services industry, a sub-sector of health care that arguably would be the most heavily affected by any health legislation.

Aside from the health care bill and some continued jitters over Wednesday’s terrorist attack in London, Thursday was a rather quiet day. In some ways, it was almost like a Fed meeting day, with few people wanting to get out in front of the big vote in Congress. Some of the key indicators like gold, bonds, and oil didn’t move much, and remained near unchanged early Friday.

The dollar, however, continues to lose ground against the euro and the yen, and gold remains near its recent highs. There’s been a lot of talk lately about the declining dollar, and that may be causing some of the financial sector’s recent pains. But when you take a look at the bigger picture, the dollar index remains just below 100, which is historically on the high end and not far below the recent top of around 103 posted in early January.

On the economic data side, durable goods orders for February are out this morning. And yesterday saw new home sales come in above Wall Street analysts’ expectations at a seasonally adjusted rate of 592,000, the government said.  After many years of a sluggish recovery, the housing market has continued to strengthen, and some analysts think 2017 could be the best year since the bottom fell out in 2007. With that in mind, it could be prudent to keep an eye on shares of homebuilders and companies that provide products and services for home construction.

Health Care

FIGURE 1: SECTOR UNCERTAINTY.

Like many sectors of the S&P 500, Health Care ($IXV) saw a healthy run-up after the November election, but recent uncertainty regarding the future of the Affordable Care Act (ACA) has pressured insurers, pharma, and other sector components. Data source: S&P Dow Jones Indices. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

Oil Still A Factor: Though political turmoil in Washington appears to be the biggest factor driving the stock market lately, don’t discount oil’s effect. Oil prices dropped to four-month lows this week, mainly reflecting supply pressure. But any sign of a demand decline could have investors worried about economic growth prospects, which is perhaps one reason why the slide in oil seemed to hit equities earlier this week. That conceivably would be a problem for far more sectors than just energy. U.S. oil rig counts are hundreds above the year-ago level, and the next weekly rig count report comes later today. It should be interesting to see if crude prices under $50 a barrel eventually start to sap some of the enthusiasm for new drilling in Texas, North Dakota, and other parts of the U.S. oil patch. Oil remained below $48 a barrel early Friday.

Not Over Yet: After a week highlighted by Fed speakers nearly every day, three more are scheduled Friday. Chicago Fed President Charles Evans, St. Louis Fed President James Bullard, and New York Fed President William Dudley all speak this morning. So far this week, Fed speakers haven’t really seemed to make much of a difference in the markets. That’s really not too surprising, considering the Fed just met and raised rates. Fed Chair Janet Yellen made opening remarks at a conference Thursday but didn’t address monetary policy, media reports said. And Minneapolis Fed President Neel Kashkari, who voted against the rate hike, said Thursday that he’d like to see a detailed plan on how and when the Fed will reduce its $4.5 trillion balance sheet. Last night, San Francisco Fed President John Williams said that three or “maybe even more” interest-rate increases this year make sense, Bloomberg reported.

We’ve said it before and we’ll say it again: The markets may now be looking more toward fiscal policy than monetary policy for direction, and the lack of impact from Fed speakers this week even as investors closely scrutinized Congress on health care might speak to that trend.

Where’s the Growth? Keep an eye on Q1 GDP estimates, because they still seem pretty weak despite some solid economic data in recent weeks. The Atlanta FedNow indicator recently projected Q1 GDP growth at an anemic 0.9%. For comparison, President Trump recently said he wants to see 4% growth. Next month brings the government’s first estimate for Q1 growth.

Good Trading,
JJ
@TDAJJKinahan

Economic Calendar

FIGURE 2: THIS WEEK'S ECONOMIC CALENDAR.

Source: Briefing.com

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JJ Kinahan

JJ began his career in 1985 as a Chicago Board Options Exchange...

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