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Investors spent much of late last week digesting Wednesday’s equity market reset in hopes that the Trump trade remains intact. Unfortunately, Thursday and Friday provided little in the way of encouragement as prices languished and the GOP’s efforts at repeal and replace failed miserably. Adding additional overhang to the market is crude oil pricing which remains susceptible to a trade lower. As a result, equity prices barely held on; closing within a fraction of Wednesday’s close. As I have mentioned over the past three weeks in this note, my sense is that the momentum trade that has rifled equity prices higher since early November has dissipated while equity market gains have stalled. Last week’s trade put a point on that. In many respects, the tapering off of the Trump rally is not at all unexpected, in fact it is due.

 
Matt Egan reported on the rally under siege on CNN Money: 
 
The Dow fell on Monday for the eighth day in a row, its longest losing streak since 2011. Trump’s stunning failure to repeal and replace Obamacare spooked investors, sending the Dow sinking as many as 184 points in the first few minutes of trading. But the index rebounded from those early losses, closing down by 46 points. The Nasdaq eked out a gain of 0.1%.”
 
The recent market retreat is a reflection of rising fears on Wall Street that Trump’s bold promises of sweeping tax reform, regulatory relief and infrastructure spending is in doubt. Investors have begun to contemplate that the Trump agenda will be delayed, watered down or even derailed.
 
The concern is that if Trump wasn’t able to replace Obamacare, a law that Republicans almost universally detest, then how will he tackle even more complex undertakings? Trump has pledged to quickly pivot to tax reform, but that could be even more challenging, especially given the serious GOP fractures exposed by the the health care defeat.
 
“If the repeal and replace was any indication, tax code reform is going to have a really hard time finding any traction. It’s not something that can take place overnight,” said Peter Kenny, an independent market analyst and founder of Kenny’s Commentary.
 
As mentioned above, the S&P 500 and Dow Industrials have both posted solid quarterly results thus far this year with one week of trading left in the period. Since the onset of 2017 we have received an additional rate hike by the Fed, solid quarterly economic results, better than expected Q4 EPS results and solid equity market gains for investors. This week with earnings season all but concluded and Q1 earnings season is still two weeks out, expect economic data and politics to dominate. At the top of that list will be Thursday’s final Q4 GDP data. Consensus is calling for 2.0% annualized up from the first two readings which were 1.9%. Q4:16 Corporate Profits, also scheduled for release on Thursday, will be viewed in terms of the previous Y/Y comparison of 4.3%.
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