The Trump Train comes to a grinding halt as drama builds over the potential failure of the American Health Care Act, otherwise known as Obamacare replacement, to make it out of the Republican-controlled House of Representatives.

If it bill fails the ramifications would be wide and far.

Replacing Obamacare is the linchpin of the Trump Agenda and has to happen before other parts could be achieved.  In addition to almost $1.0 billion in tax savings, removing roadblocks to small business growth and lowering the federal debt, the passage of the bill would signal smooth sailing on all other parts of Trump’s economic initiatives. 

Young Guns vs Tea Party As for GOP in-fighting, this is more over principles that really pit fiscal conservatives like those in the Freedom Caucus against the established elites. When Rep. Dave Brat says there are potentially 50 “no” votes you take him seriously because the voters that put him into office rejected Eric Cantor and Paul Ryan.   I don’t think President Trump takes a big hit on this and in fact it might be a chance to go back to the drawing board and lead the process from the very start.

The root of this spectacular improvement in business and consumer confidence is the belief that the wheels of commerce will be lubricated with lower taxes, fewer regulations and having a cheerleader for success and optimism in the White House.

I honestly don’t think Wall Street cares what a final Obamacare package looks like they just want it over and done.  The Freedom Caucus and others, however, are very serious about their stand –see sidebar. 

Instant Wealth

Ultimately the stock market revolves around corporate earnings and while I look for companies that are growing the top line organically with pricing power, expanding margins and taking market share, lowering taxes would instantly fatten bottom lines.

This is why the Street yearns for President Trump’s tax cuts which could go as low as 15% (but I would take 20% and no broader adjustment tax).

Some models suggest an automatic increase to S&P 500 earnings of 9.5% at the 20% top rate and 12.5% if the rate got to 15%.

Tax Reform Impact

S&P Earnings Boost Corp Tax Bracket vs Earnings Addition to S&P 500

32% = 0%

30% = +3.5%

25% = +6.5%

20% = +9.5%

15% = +12.5%

Source Larry McDonald

Sector Impact

Yesterday, utility stocks were up big as investors retreated to safety but over the long run the inability to lower corporate tax rates could have a deleterious impact on consumer staples and discretionary stocks.   

Beyond the fact this was the first broad market decline of more than one percent in 64 trading days, which was the best streak in 50 years, key “Trump stocks” and sectors really took it on the chin.

The Wall and infrastructure darlings got hammered:

• US Steel (X) -9%
• US Concrete (USCR) -3.7%

Dodd-Frank financial reform names:

• Goldman Sachs -2.3%
• KBE (big bank index) -4.8%
• KRE (regional bank index) -5.4%

Key Support Points

The market was due for a pullback and I’ve tried to prep everyone with my commentary.   Those that just got back in the market and are afraid thinking I’m not “sophisticated” are going to blow it by taking unnecessary losses.

Key support for the S&P 500 hits 2,278

Key support for the Dow Jones Industrial Average hits 20,100

I like it when stocks go on sale although modelling a sharp reversal lower in sentiment makes everything more difficult. 

On that note, I see the majority of President Trump’s polices going into effect but the realities of Washington mean that it may not be smooth saili

The fact is that the market is never smooth sailing for long but fortunes are made when others are panicking.   This ride has just begun and this show down might mean smarter bills and organization in the future.   I’ve been asking everyone to keep their powder dry and be ready to pounce.  The good news is very few are panicking or stampeding out the market. 

As for the buy signal - if there is clear resolution to the Obamacare drama today we would be looking to buy but more than likely this comes down to the wire tomorrow night.

Today’s Session

Big “news” this morning from the candid admission from Sears (SHLD) that the company may be headed for the elephant graveyard. 

Of course, this isn’t news per se.  The company has been in trouble for a long time, and the stock has been a disaster. 

But it’s heartbreaking nonetheless for those that remember the good old days of Americana that saw rapid upward mobility and consumerism with the Sears Catalog as the pace car.

Heck, you could actually order a house from Sears and 70,000 did from 1908 to 1940.  

The company is still pretty big with 140,000 employees and even did $6.1 billion in revenue in the last quarter of 2016. 

But the company lost $600 million, hence todays’ admission.

Things didn’t have to get this bad for the company even as brick and mortar has come under assault.   It more about terrible management, unwillingness to invest and upgrade its stores and zero online strategy.

Other than Sears, there was mixed results from Nike last night, and that stock getting hit hard this morning (pressuring the Dow Jones Industrial Average).  While FedEx looked vulnerable after reporting this morning, the shares have turned around after the conference call in which Fred Smith soothed any concerns. 

There could be major action in the House Rules Committee meeting where serious horse-trading will take place with the clock ticking down to tomorrow’s big vote.

 

Comments

Always wondered about all the "free shipping" on the internet purchases. Al M. on 3/22/2017 10:02:10 AM

The Trump Train will come to a halt many time before things will change because bills passed in Washington and made into laws are difficult to change. It takes time and co-operation from many people. Things like this do not happen overnight. I believe the working class want knows this but feels left out after elections are over. MS Michael Spangler on 3/22/2017 11:27:33 AM

I remember WELL the days of my youth when my parents eagerly awaited the arrival of the 2" thick Sears catalog and how the family would gather round the kitchen table to Oooo and Awwww at the offerings within the covers. It is TRULY a sad, SAD day when one of the nation's most respected and longest-lasting retailers has to fold its tent much like Woolworth's, Kreske's, J.J. Newbury and the like. I know it is said "There is no progress without change," but the demise of Sears Roebuck & Co. makes it no easier, especially when it appears more brick and mortar stores are on THEIR way "out," as well. James Warlin on 3/22/2017 12:48:59 PM

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