Morning Market Thoughts
Good morning. Futures are down sharply this morning as a consequence of the GOP’s failure to get the health care proposal though the House. Because it was proposed by politicians and K Street, no one knows for sure whether the health care bill would have saved the federal government any money. (One eyebrow is always raised when you hear that something run by Washington is actually going to save money. It’s a unicorn.)Nevertheless, the market’s conclusion is this:
If the health care proposal did not make it out of the on deck circle, there is no room left to offer a tax cut. And without a tax cut…the outlook for business operations isn’t so good. Pretty simple, actually.
There are three points to consider:
1. This is not “fake news”. It’s going to take quite a while to sort things out because we’re talking about legislation. At best, it takes quite a while. And the rhetoric will not be helpful to the market.
2. There has been you can Because of the implications of this news, and the market has run significantly as it anticipates a reduction in taxes. The S&P ran about 13%, and the Dow Jones US Banks Index ran 35%. It has since corrected 8% and is now up just 23% since the election — so about a third of the bank rally has already been given back.
3. The 50-day moving average is being tested by the S&P 500 and the Dow 30. A failure to hold that level would inflict significant damage on the market because that will leave the Nasdaq as the only major index standing.
We can’t say that the market didn’t give us fair warning. After the big sell-off last Tuesday, stocks barely snapped back. Instead, they just hovered at support levels. This isn’t the sign of a healthy market. This is the sign of a tired bull that has little appetite for stocks.
It is important for you to look at all of your stops this morning. Will they be triggered at the open? If so, will you be happy to be out, or do you suspect that the stock will rebound a bit after the gap at the open? This is typically what stocks do when the market opens significantly lower. But that’s not a sure thing, and sometimes stocks just continue to fall. I can’t make any predictions, so I’ll just point out that this is something you need to consider. But just remember this:
You can always buy ’em back.
See you in the forum, where we’ll be tracking the market in real time.
–Dan
Market Update