The S&P 500 suffered its worse loss since the election. Small cap stocks were crushed as were financials & health care stocks. What changed on Tuesday? The “Freedom Caucus” spoke up causing a massive chain reaction.
What is the Freedom Caucus & how can a group with so few members cause such damage to the financial markets? Essentially the Freedom Caucus represents the remnants of the Tea Party. Remember, the establishment inside the GOP did everything possible to destroy the group that gained so much traction in 2010 on the platform of smaller government, significant cuts to government spending, and ending the favoritism given to the mega corporations and Wall Street banks. While they have lost the power they held in 2010 & 2012, the loss of seats in Congress last November means without the support of the Freedom Caucus, the Republicans cannot pass any bills in the House.
On Tuesday, 26 members of the Freedom Caucus voiced their concerns over both the replacement to the Affordable Care Act as well as the Trump budget and tax plans. The Republicans can only afford to lose 21 votes, so with that all the hopes and dreams that were priced into the market quickly disappeared. Anybody that has attended my seminars, read this blog, tuned into my Podcasts, or simply had a conversation with me has likely heard about the risk of not seeing all the “good” Trump policies seeing the light of day. Tuesday was a reminder of how fragile all of these plans really are.
I looked back at my blog post the day after the election. This bullet point stood out:
-As far as potential changes the Republicans pushed for throughout the campaign, the tax cuts are likely to be smaller than promised (but there still will be significant tax cuts), the changes to the Affordable Care Act could be smaller and delayed (they need to find a replacement to get anything through Congress), and the moves on trade are likely to be slow and cautious.
Time will tell if this marked the end of the Trump rally. The economy has certainly picked up steam as I was discussing in our “What am I missing?” thread this week, but another thing I’ve told people when giving my forecast — the forecast hinges greatly on how many of the “good” Trump policies actually are put into action this year.
Suddenly things have gotten very interesting. Stay tuned…..