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.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.