Trump Agenda Threatened


U.S. stocks have suffered their first notable decline of 2017, reflecting profit-taking and doubts regarding the potential for corporate tax reform. The Dow Industrials dipped roughly 2% from their March 1 closing high of 21,115.55, while the Dow Transports slumped nearly 7% from their March 1 closing high of 9,593.95. Near-term volatility would not be surprising, but we are inclined to view a pullback as a correction in an ongoing bull market. Our buy lists have at least 94% in stocks.

Legislative prospects

Because of Republican infighting on legislation to replace Obamacare, investors are worried that all of President Trump's agenda could be in trouble. Initiatives on taxes, regulatory reform, and infrastructure could be imperiled if efforts to pass health-care legislation fail. At 37%, Trump's approval rating is already below the lowest levels reached by President Obama, so Republicans may feel emboldened to go their own way on other issues if health-care legislation stalls.

Bank stocks, which have led the market since Election Day, have been hit particularly hard. Not only have bank stocks been penalized by diminished expectations for tax and regulatory reform, they've also been hurt by a dip in long-term interest rates. Banks are counting on higher interest rates to improve their margins.

Transportation stocks have also slumped, reflecting worries that economic growth will not accelerate as much as hoped. The railroad, trucking, and airline groups have all declined since early March despite posting mostly solid December-quarter results.

Small-company stocks, seen as especially sensitive to the outlook for tax reform and U.S. economic growth, have dropped nearly 5% since March 1 and are now down year-to-date.


Stocks don't advance in straight lines, and pullbacks are part of all bull markets. While the slump in the economically sensitive Dow Transports is discouraging on a near-term basis, a wholesale retreat out of stocks seems premature. Subscribers should maintain a mostly invested posture.

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