When it comes to Wall Street, Trump can launch martial law, suspend habeas corpus and/or use the Constitution for kindling and the market could care less as stocks will still go up. However, threaten some of Trump's core economic stimulus projects like infrastructure spending (i.e., more public debt to fund corporate bottom lines) or tax reform (even more public debt flowing through to EPS), and suddenly stocks will pay very close attention.
It now appears that this particular "worst case" for stocks may be playing out. As we cautioned in our previous post looking at the impact of Trump tax reform on corporate earnings, the biggest risk for the controversial president is that "at this rate Trump may spend much of his first year dealing with immigration reform and Obamacare."
However, as Paul Ryan warned last week during the Republicans' outing in Philadelphia, Trump's "#1 priority", repealing and replacing Obamacare may not take place for several months. To wit:
House Speaker Paul Ryan told House and Senate Republicans that lawmakers likely won’t repeal and replace Obamacare until March or April. Speaking in the first major session of GOP lawmakers’ joint retreat in the City of Brotherly Love, Ryan said Wednesday that the health care law wouldn’t be repealed and subsequently replaced until spring.
"What we heard today was Obamacare is front and center,” Rep. Chris Collins, R-N.Y., told reporters, referring to the first session of the retreat, which outlined President Donald Trump’s first 200 days in office, or the “200 Day Plan.” “Repeal and replace,” Collins added. “The word was by the springtime.”
And so the topic of eliminating Obamacare, which we explicitly warned could take up to two years to be replaced, is starting to drift off into the future.
Ok fine, repealing and replacing Obamacare may be on hiatus, but at least Trump's massive infrastructure project is still on track, and will be executed shortly. Guess again. According to Politico, the great bipartisan hope of 2017 – a massive public works initiative that would allow Donald Trump and Democrats to show they’re serious about putting blue-collar workers back to work – "may be in trouble before negotiations even begin."
Trump will almost certainly need Senate Democrats to get any infrastructure legislation through Congress, and this week they laid out a $1 trillion proposal this week that neatly matches the price tag of Trump’s own plan. But the similarities end there: If anything, Democrats set a mark that will be nearly impossible for the White House to meet.
The gaping disparity between the two approaches, and huge unanswered questions about where the money would come from, are serious warning signs for one of Trump’s top priorities. The biggest difference: Senate Democrats want to build on existing government programs and consider adding to the deficit, while Trump has emphasized tax credits that his advisers argue would pay for themselves.
The politics of a bipartisan infrastructure deal were already rough for Trump, with GOP leaders wary of any new spending and more interested in tackling health care and tax reform. So this week’s Democratic infrastructure proposal, billed as a “challenge” to the new president, is a troubling sign as Trump pushes to make good on his frequent vow to be “the greatest jobs producer that God ever created."
Considering that a massive infrastructure spending stimulus has been one of the main drivers behind the recent surge in stocks, and especially behind industrial and material stocks, the encroachment of reality over "hope" may leave a sour taste in the mouths of a big subset of stock market bulls.
But the worst news for Trump's Wall Street supporters is neither the Obamacare delay, nor infrastructure spending hiatus, but his tax reform, arguably the single biggest driver behind the powerful market rally. Alas, as Reuters reports, things here too may be about to get indefinitely delayed into the future, to the point where the market may finally start asking itself if it has gone up too high, too fast.
The reason for this was revealed last week in Philadelphia, when the reality of Trump's aggressive fiscal spending agenda hit the brick wall of Congressional Republicans. According to Reuters, "as congressional Republicans gathered for an annual policy retreat in Philadelphia on Wednesday, the 100-day goal morphed into 200 days. As the week wore on, leaders were saying it could take until the end of 2017 - or possibly longer - for passage of final legislation."
And while Trump had a different idea when he spoke to lawmakers in Philadelphia, "telling them: Enough talk. Time to deliver", he may have no recourse when dealing with the bitterly polarized and fragmented House of representatives:
barely visible in Philadelphia, there are potential flashpoints of disagreement within the Republican rank-and-file in Congress as well as between Republican lawmakers and the unorthodox new president.
These include how and when to replace Obamacare if Republicans succeed in their quest to repeal it; how to revamp the multi-layered tax code, whether to build a wall on the U.S. border with Mexico and the nature of the U.S. relationship with Russia.
But the most troubling revelations was the following: "When it comes to tax reform, senior congressional aides said the spring of 2018 might be a more likely time than this year for the passage of legislation."
For thousands of financial professionals, the shattered illusion that Trump would somehow be able to channel through trillions in spending with little to no delay, may end up costing them dearly. Furthermore, now that Trump has managed to infuriate even more politicians, including at least 11 GOP members, with his recent flurry of executive orders, it is likely that the "due date" on tax reform was pushed even further back.
Ultimately, the reason for the delay is the same one we warned about just days after Trump's election: a republican party that is simply unprepared to authorize the kind of spending demanded by the president: "some also voiced fears that his big agenda would drive up deficits and said they were still searching for details on his plans."
Several Republican lawmakers and aides said they were wary of the cost of his plan to build a wall on the border with Mexico. Republican leaders have said the wall proposal under discussion would cost $12 billion to $15 billion cost but some congressional aides say it could end up easily topping $20 billion.
Republican Representative Will Hurd, whose Texas district partially borders Mexico, went a step further, calling the wall an ineffective tool for stopping illegal immigration.
Others warned a border adjustment tax on foreign goods to pay for that wall could hurt U.S. companies' profits, raise costs for American consumers and spark retaliation by foreign trading partners.
Not just others, but the billionaire Koch brothers, who as reported previously have emerged as the bigest opnnents of the proposed Border Tax due to concerns about the profitability of their various business operations.
But before Trump even gets to tax reform, which he can not "fix" with an executive order, he has to figure out what to do with Obamacare, and even here things are slowly grinding to a halt.
Some lawmakers also worry that some of their constituents could be at risk of losing healthcare coverage if the push to repeal Obamacare moves too quickly.
"You don’t want to be the reason why we weren’t successful in getting these things done," he said. Still, Cole said Republicans are taking stock of the potential cost of the biggest items on Trump's agenda such as the wall, infrastructure projects, tax cuts and beefing up military spending. "I think they worry about it," Cole said.
Following Trump's speech to the lawmakers on Thursday, Senator James Risch said that no decisions had been made on the replacement of Obamacare, a complex law that has expanded healthcare insurance to millions of Americans. "It's going to take a while to resolve it," Risch said. Asked by reporters whether Republicans had a clear idea of what Trump would like to replace Obamacare with, Risch responded, "In detail, no."
The problem for Trump, especially now that he has embraced the market as an indicator of his job success, is that with every passing day, the 'detail' will be demanded by those would buy stocks. And in its absence, instead of buying, we may finally see a period of aggressive stock selling to remind the president just what his promises to Wall Street were.