MARKET SNAPSHOT: Stock Market's Record-setting Rally At Risk As Doubts Grow Over Trump Agenda
August 20 2017 - 3:05PM
Dow Jones News
By Sue Chang, MarketWatch
Political turmoil suggests Trump faces uphill battle in
executing tax reform
It was good while it lasted.
Almost seven months to the day President Donald Trump took
office, his "Make America Great Again" agenda has been eclipsed by
political turmoil that is threatening to unravel a record-breaking
rally in stocks.
After a chaotic few days that culminated with the resignation of
White House strategist Stephen Bannon
(http://www.marketwatch.com/story/bannon-out-as-white-house-chief-strategist-2017-08-18),
doubts over whether the embattled president will be able to deliver
on his business-friendly policies have started to seep into the
market.
"The country is very divided. The Congress is at war with the
president," said Ian Winer, head of the equities division at
Wedbush Securities. "This week opened up the possibility that
nothing will happen [on the policy front] throughout the next four
years."
Much of the market's gains since Trump's election win have been
underpinned by hopes that the president will push through tax cuts
and roll back regulations that had hobbled U.S. corporations.
But that all changed as Trump's combative style increasingly
alienated those within his own party, making it more difficult for
the president to secure legislative support for something as
complex as tax reforms, said Brad McMillan, chief investment
officer at Commonwealth Financial Network.
"I would not rule it out entirely, but I think the chances are
pretty low at this point," McMillan said. Any hope for a tax
overhaul is now "dead and buried," in his view.
Stocks closed lower on Friday
(http://www.marketwatch.com/story/dow-set-to-fight-for-direction-but-flirts-with-biggest-two-week-drop-in-nearly-a-year-2017-08-18),
falling for a second straight week in another sign that investors'
confidence in Trump's economic leadership may be floundering.
There are other bearish signals, too.
The Dow Jones Industrial Average and the Dow Transportation
Average are continuing to diverge, suggesting that stocks may be
headed for a rough patch. In a robust market, benchmarks should
move higher in tandem and serve to confirm each other, according to
the Dow Theory.
After an extended period of calm, recent sessions have been
punctuated by dramatic swings in the index.
As Frank Cappelleri, a technical strategist at Instinet LLC,
points out, three of the seven 1% moves in the S&P 500 this
year occurred in the past few days, hinting at emotionally driven
trades,
"The cluster of large moves, increased volatility and widening
divergences between the S&P 500 and the smaller cap indexes
have made the market environment appear more ominous in my
opinion," said Cappelleri.
Read:Bad news for the stock market: The Hindenburg Omen is back
(http://www.marketwatch.com/story/bad-news-stock-marketthe-hindenburg-omen-is-back-2017-08-17)
Most market dips this year have been countered with resurgent
demand for stocks, which had been forceful enough to push stocks to
new highs. However, if similar buying does not materialize after
this most recent drop, it will be a clear sign that "the market's
character has changed," he said.
Still, there are die-hard bulls who refuse to throw in the
towel.
Andrew Adams, market strategist at Raymond James, remains
steadfast in his belief that the market's upward trajectory is on
track.
"Our secular bull market thesis remains intact despite the
action over the last two weeks. The current dip is not unexpected
at all given the historically-long duration of the run we've been
on since the election and the weakening under the surface of the
market the last few weeks," said Adams.
The strategist, in fact, believes politics are a convenient
scapegoat for bears and investors should not read too much into the
market's recent stumble given that it coincides with the end of the
earnings season.
"This is probably just a round of profit-taking exacerbated by a
lack of positive earnings news to counterbalance the negativity,
and that the market still likely has a relatively high floor to how
low it will fall," he said.
Adams is advising his clients to stay cautious in the near-term,
but not bearish.
(END) Dow Jones Newswires
August 20, 2017 14:50 ET (18:50 GMT)
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