Health Care Setback Impacts Trump Trade

Health Care Setback Impacts Trump Trade

Hospital stocks blunted a stock selloff |
Hospital stocks blunted a stock selloff | Getty Images

For technical analysts, today's drop in the S&P 500 was worrisome even if you had no idea what was happening in policy and politics. The index dropped below the 50-day moving average for the first time since the US election. Crossing that moving average line is often seen as a sign that a trend is beginning to weaken or reverse. As with many technical tools, the tool works in part because other traders are reaching the same conclusion. It becomes a self-fulfilling prophecy. 

But today's move, which was quickly reversed as the market pared its early losses, was a pretty good indicator of investor sentiment. Normally, it is healthy to avoid reading political opinions into market movements. Today may have been the rare exception and the reason is that one particular sector drove the rebound: hospital operators, who would have been hurt by a repeal. HCA Holdings Inc. gained 4.7 percent and other HMO and health care providers like Universal Health Services Inc. rallied as well, counteracting a broader selloff in stocks.

In other words, the market dropped Monday morning because the Republicans failed to repeal Obamacare. Then, later in the day, health stocks helped the market rebound because...the Republicans failed to repeal Obamacare. 

What was good news for hospital stocks—not to mention 24 million Americans who the Congressional Budget Office says would have lost their health insurance—was bad news for the president and his party. House Republicans withdrew their bill without even bringing it to what they realized would have been a failed vote. It marked a failure for the Trump administration and a sign of serious fractures in the GOP. 

It was also worrying news for those who had bought into the so-called Trump Rally after the election. Indeed, the drop and recovery happened even in the DAX (Nadex Germany 30) and Nikkei (Japan 225) indexes, which you wouldn't think of as dependent on the fortunes of the US president. Why was the failure to repeal and replace Obamacare such a big deal for investors? 

For one thing, it was Pres. Trump's first major piece of legislation. Less than ten weeks into his term, the president pushed the Congress to vote on a bill that at mid-week was still being edited and which most members had not even read, let alone finished debating. By contrast, Ronald Reagan took until August to build support for his first major legislation, a sweeping set of tax cuts which arguably led to the recession of 1982 and six tax increases in the next seven years, but also cemented his power. The win on first legislation became so important that when Pres. Clinton pushed for his first legislation, the Family and Medical Leave Act, even Democrats who opposed it voted with him, just to avoid crippling him and the party. It is a rule of the modern presidency that members of Congress line up to give their party's leader a first win. 

That rule was broken last week and showed a GOP divided between establishment centrists and the right-leaning Freedom Caucus, which came out of the Tea Party movement. Paul Ryan didn't announce that they would try again and instead declared Obamacare "the law of the land...for the foreseeable future." Pres. Trump, who wrote The Art of the Deal, tweeted what appeared to be a deflection of blame onto Ryan. This makes investors who literally and figuratively bought into his reputation as a dealmaker more doubtful. 

The big doubt in the minds of those investors is whether Trump and the GOP can pass the tax cuts they want. The main attraction of the GOP plan for many was that it included tax cuts for the wealthy. With new reports that the administration is now dialing back on tax cuts and planning a more modest proposal, some investors are taking money out of risky assets like banking stocks and moving it to safe havens. Gold rose 0.5% on Monday. 

Even more worrisome is the decline in the dollar, which has now given up most of the gains it had made after the election. The dollar faces new pressure from a surging euro, which rose today after a major regional win for the party of German chancellor Angela Merkel, who may be the least Trump-like leader in Europe. 

With Friday's fail, a weaker dollar, and an ongoing and expanding investigation into the administration's connections to Russia, some are even worried the Trump Bump may turn into a Trump Dump. 

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