As has been the case since the election, the political noise in the market is deafening.
But cutting through that noise, the reality is this: The gap between market expectations from Washington and the current reality has grown significantly in the month since Trump’s inauguration, and it is not an understatement to say that political disappointment risk is now very high.
Specifically, Trump noise aside, all signs point to massive fractures in the Republican Party over the repeal/replace of Obamacare, and over border adjustments (the key to any material corporate tax reform).
To boot, the constant drama and infighting is draining Trump’s political capital even before we get close to deals on Obamacare and taxes. Specifically, the immigration ban battle, the Gen. Flynn drama, and the Puzder (the Labor Secretary nominee) withdrawal (where a full 12 Republican Senators would have voted against him) all are combining to reduce the likelihood of anything substantial on taxes.
Bottom line, the only thing politically that really matters to markets is tax cuts. But given the fractures appearing on Obamacare and border adjustments, the likelihood of material, pro-growth policy is fading… and fast.
Last week, Trump again touted fantastic things coming up, and Ryan promised an Obamacare repeal/replace by the end of February. Yet neither actually mean any progress (for that we need Republican support for bills in the Senate, and that’s lacking).
Going forward, a key date emerging on the calendar is February 28, when Trump is due to give an address before Congress (first year Presidents give this address instead of a State of the Union).
If there is no material progress on a compromise on a Obamacare repeal/replace or border adjustments within corporate tax reform by this address, then the political reality could begin to weigh on markets as investors begin to lose hope of pro-growth reforms in 2017.