The stock market has once again entered a period
of consolidation as investors wait for the results of the most important
legislative decision of the year. The fight to repeal and replace
Obamacare has taken the spotlight as Congress debates the passage of
legislation that would eliminate its most burdensome aspects for businesses and
individual taxpayers alike.
Internally,
the NYSE broad market has been unsettled for the last several days after a
period of relative calm in the months following the U.S. presidential
election. There have been more than 40
stocks making new 52-week lows on a daily basis since last week. This makes almost two weeks that the number
of daily new lows has exceeded 40, which reflects an increase in internal
selling pressure. Most of that selling
pressure is coming from consumer/retail stocks, bond funds and, increasingly,
energy stocks.
The
extremity of internal selling pressure isn’t yet great enough to cause any
major concerns about the strength of the stock market’s intermediate-term
uptrend. If the new lows don’t soon
diminish, however, it could eventually cause problems for the interim trend as
internal weakness spreads from the above mentioned sectors to the broader
market.
Following
is a graph of the daily cumulative NYSE new highs-new lows. It’s telling that for the first time since
the Nov. 9 election, the highs-lows have stalled out. And while the trend is still technically up
for the highs-lows, that trend could be broken if the new lows continue to
expand in the next couple of weeks.
It’s
clear that the honeymoon phase of President Trump’s election is over as
investors aren’t giving a free ride to the stock market until he delivers on
some of his campaign promises. The most
critical of these promises concerns the proposed overhaul of the Patient
Protection and Affordable Care Act (a.k.a. Obamacare). The mainstream news media are in full swing
right now with negative stories which undermine the Congress’ effort at
eliminating the onerous taxes surrounding Obamacare. The tantalizing prospect of having the bill’s
individual and employer mandates (which forces individuals to purchase health
care or else pay a steep penalty) repealed is one big reason why the middle
class turned out in droves to elect Trump.
Now
it’s time for the Republican-controlled Congress to “spit or get off the pot”
as the saying goes. Congress has an
excellent chance to relieve a massive tax burden on individuals and small
business owners by approving the proposed repeal of the Obamacare
mandates. Unfortunately, there is now a
concerted effort underway within Congress designed at undermining the proposed
overhaul. It can’t be emphasized enough
that the repeal of the Obamacare taxes would be of tremendous benefit for the
economy by relieving the stress created by years of burdensome taxation. That pent-up energy would likely express
itself through a massive rally in the Dow and major averages, which have been
tethered by the uncertainty surrounding the Obamacare reform debate in
Congress.
A
repeal of the individual and employer mandates would also likely result in a
hiring spree by small business and would give the stock market the euphoric
burst of investor confidence needed to achieve heights undreamed of by even the
most optimistic bulls. This in turn
would stimulate even more business activity due to the stimulative effect of
America’s financially-driven economy.
It’s
sobering to think that how the rest of 2017 turns out for investors and wage
earners alike might very well rest in the hands of Congress even as we
speak. All we can do now is pray for the
best outcome and hope the Congress is able to deliver what would be the most
extraordinary gift that Washington could possibly give the American
taxpayers.
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