SPX Slumped With Investors’ Angst on Trump’s Tax Cuts
By: Eddy Peng Mar 22, 2017
Yesterday on March 21 the S&P 500 lost 1.18 percent in its worst one-day performances since before Trump’s selection victory in November, closing at 2343.8, the lowest level in a month. The S&P 500, in its second longest bull market ever, has surged close to 10 percent since the Nov.8 election last year on optimism about Trump’s pro-growth agenda, mainly attributed to the expectations of tax cuts.
The steepest pullback of S&P 500 since the U.S. presidential election reveals investors’ deep concerns about President Donald Trump’s ability to push through major reforms, such as tax reform and Obamacare abolishment, leaving stocks vulnerable to a long-anticipated correction.
Amid the sharp drop of S&P 500, its financial index .SPSY sank 2.87 percent, experiencing its biggest daily fall since June. That added to losses in the sector since the 25 basis point of rate hike and the signal that it would remain on a gradual pace of hikes from the Federal Reserve last week on Thursday.
Banks benefit from the latest rate hike and their stocks are sensitive to changes in expectation that how quickly the Fed will adjust rates. The biggest drag on the S&P 500 is the Bank of America, with slumping by 5.77 percent.
“There was a feeling the Fed was going to possibly be more hawkish last week. That didn’t happen,” said Mark Kepner, managing director at Themis Trading in Chatham, New Jersey. “That takes a little out of the higher rates that the banks want.”
U.S. President Donald Trump, aiming to get his first major political win of his presidency, warned Republican lawmakers on Tuesday that if a healthcare bill he backs fails to pass, it would cause “political problems.” With struggle of pushing through those new policies, “It’s like the Trump agenda getting kind of slapped in the face,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.
Republican leaders aim to move controversial healthcare legislation to the House floor for debate. Markets saw the health bill vote, expected as early as Thursday, as testing optimism that the Trump administration will implement tax cuts, deregulation and infrastructure spending which are expected to boost further economic growth. However, since minority Democrats are united to fight against it, they can only afford to lose about 20 votes from Republican ranks or risk the bill failing.
Technically, by drawing daily equidistant channel, it can be clearly seen that since Nov. 7 last year the movement of SPX500 was following the range of this channel before the downside breakout of steep drop yesterday. This daily fall is likely to reverse the bullish trend over the past four months as it has already slumped right below the lower equidistant line.
Chart 1: SPX500 Daily
Referring to the 30-minute movement, we found that it fell sharply since 00.30 am Sydney time, with experiencing the steepest drop this year. We look for the possible small rally after this drop in the short term. However, as the analysis above, we don’t see much rise over the long term.
Chart 2: SPX M30
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