US Policy Risk Highlights Politically Charged 2017 for Markets

Overbought. Technically tired. There are more sellers than buyers. These phrases describe the state of the stock market in the last session-and-a-half.

No doubt, the stock market is long overdue for a correction, after a scorching rally since the election, and a solid start to 2017. Stocks went 109 days without a 1 percent daily decline, a relatively unusual duration.

There is no doubt the market can fall further amid a variety of obvious concerns. The fate of “repeal and replace” means a few very important things to Wall Street.

First, though infrequently discussed in detail, the failure of the American Health Care Act (AHCA) to pass the house and/or Senate means there will be no reduction in the 3.8 percent capital gains tax surcharge on wealthy individuals.

That tax, used to fund Obamacare is on the chopping block in the current GOP bill and would have provided a retroactive tax cut to stock market investors.

Second, the failure of the AHCA would delay, if not imperil, the Trump/GOP agenda going forward, meaning that comprehensive tax reform (and tax rate reductions) could be pushed off until 2018, or later. The market has priced in a nearly immediate passage of new tax legislation.

Infrastructure spending and increased defense outlays could also be delayed as the White House struggles to pass a budget.

Hence, the “Trump Bump” could turn into the “Trump Dump” if his legislative agenda is derailed.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza