The Congressional cliffhanger over the House vote to replace Obama’s signature Affordable Care Act with the American Health Care Act has kept the market treading water, as analysts tried to interpret how much the standoff reflects the Trump Administration’s ability to govern effectively.
“This is the first major test of the policies the Administration’s going to try to get across,” said Sean Lynch, co-head of global equity strategy for the Wells Fargo Investment Institute.
Industry professionals say the vote is a proxy for how willing and able Republicans will be able to shepherd the Trump agenda through Congress, despite controlling both chambers.
“I would characterize it as a vote of confidence whether or not Trump’s full pro-growth program will be able to be enacted,” said Peter Cardillo, chief market economist at First Standard Financial.
“It really raise questions about the ability of the President to get his agenda through.”
Analysts suggest that passage could lead to a slight rally, but most said that the expectation of success was already priced into the market’s post-election buoyancy.
This market can not endure any disappointments,” Cardillo said. “If it passes you’ll probably see a little bit of positive reaction, but not much. It’s already baked into the market."
The stakes are greater on the down side.
“The key thing about all of this is [failure] certainly endangers the rest of the president’s agenda, which is being priced into the market aggressively,” said Robert Johnson, director of economic analysis at Morningstar. “It really raise questions about the ability of the President to get his agenda through.”
Practically speaking, the Trump administration could put health care on the back burner and move onto cutting corporate taxes if the legislation is voted down, but some suggest the GOP built itself a roadblock by making “repeal and replace” such a high-profile mandate.
“Could they move on? They could, but they’ve been telling their base for the last six years that they’re going to repeal the Affordable Care Act,” Chris Meekins, a research analyst with FBR & Co., said in a CNBC interview on Thursday. “It has the potential to be a really bumpy road over the next six weeks,” he said.
This doesn’t necessary mean a massive selloff, though. While some predict that a legislative stalemate over healthcare could scare investors into heading for the exits, others are more sanguine.
“We only just need to look back at Brexit to see a market sharply recover from a perceived setback,” said Robert Schmansky, founder of Clear Financial Advisors. “We can also look at our own election for an example of a political event that many thought would crash markets. It hasn't. Markets can and will adjust and bounce back.”
Lynch said the overall strength of the economy could backstop a market slide. “We could see a small pullback in the 2 to 5 percent range [but] underlying fundamentals are improving,” he said.
“If there’s a giveback I would look for an economic reason. For example, if the oil market continues to weaken, that could hurt U.S. productivity and manufacturing,” said Mitchell Goldberg, president of ClientFirst Strategy, Inc.
“I think Trump will be able to move through with an agenda that’s market-friendly. He’s simply running into the same brick wall that his predecessor ran into, and that brick wall is Congress,” he said.
Market observers were left guessing whether the far-right House Freedom Caucus, which has the power to derail the legislation in the face of unified Democratic opposition, would be content to enjoy its moment in the spotlight and then move ahead towards passage, or would be emboldened to dig in their heels and create legislative gridlock on other issues, as well.
The latter scenario is what worries investment pros.
“Does this mean all of the promises, and optimism that partially caused the markets to rally, fades away as the GOP and President fail to get on the same page?” said Steven Elwell, partner and vice president at Level Financial Advisors.
“The market seems to be expecting an infrastructure spending bill and tax reform. If those plans are in doubt, the market will likely disapprove.”