Why markets won't care about a potential healthcare bill failure
Markets like President Donald Trump, plain and simple.
And for months now, the market’s positive reception to the Trump administration has been out of step with the seeming chaos happening in political circles.
The House of Representatives was set to vote on the American Health Care Act, Thursday, the GOP-proposed replacement for Obamacare, on Thursday evening. However, the House delayed the vote because Republicans had not yet drummed up enough support for the measure.
And while, if you squint, it looks like stocks got a bit jittery following some of these headlines, ultimately markets finished the day little changed.
Earlier this week, markets sold off on vague concerns over the ability for this bill to pass which, by extension, cast into doubt the whole of the Trump economic agenda.
However, some analysts saw the sell-off as rooted in more technical factors than any individual headline. And this also falls broadly in-line with the idea that markets and politics are viewing the Trump administration through completely different lenses.
Cutting taxes, spending on infrastructure, and cutting regulations were the three pillars markets — as well as businesses and consumers — had gotten so excited about since the election. House leadership, however, began with healthcare. And the market’s logic says that if the first part of the agenda fails, the whole thing is in trouble.
But as we wrote last month ahead of Trump’s address to Congress — after which markets rallied sharply — “in the case of U.S. stocks and President Trump, investors as much see a President who wants to cut taxes as they see someone who values what they do.”
This week’s AHCA drama, then, is completely in-line with what we’ve seen so far and are likely to see going forward. Ahead on Thursday when the AHCA vote was still expected, stocks were rallying.
Why markets care
“Market participants have become focused on the House vote for two reasons,” writes Alec Phillips, an economist at Goldman Sachs.
Phillips writes that markets believe, “Clearing the health legislation from the agenda is necessary to move to tax reform, which we expect to have a greater effect on corporate earnings and the real economy than the healthcare issue? and politically, the outcome of this first debate sends a signal regarding the viability of the rest of the policy agenda and the Republican majority’s ability to enact it.”
This view, overall, is “generally correct” in Phillips’ interpretation. But with Senate passage of this bill an even higher hurdle than jamming it through the House, the timeline for passing healthcare reform — and as a result turning to taxes — was always likely to be delayed, potentially into the summer months.
That this delay and wrangling would sink the entire Trump agenda, however, is perhaps less founded than this week’s conventional wisdom might dictate.
“We think fears that the failure of the bill could seriously threaten the rest of Trump’s legislative agenda are overblown,” writes Andrew Hunter, an economist at Capital Economics.
“For a start, there is no procedural reason why the failure of the bill would threaten future legislation. The Republicans have chosen to pursue health care reform through a reconciliation bill, which requires only a simple majority to pass the Senate. However, only one can be passed each fiscal year. With a reconciliation to the 2017 budget being used for health care, tax reform will be left for a separate reconciliation to the budget for the 2018 fiscal year, which begins in October.” (Emphasis added.)
Hunter adds that, in theory, tax reform could be passed through reconciliation this year — instead of healthcare — but Republican leadership, notably President Donald Trump, have chosen to pursue healthcare first.
And so, again, markets seemed to have, to some extent, become convinced that success on healthcare is needed in order to ensure success along the balance of the Trump agenda. But this view has markets accepting the political logic of Trump’s agenda, which to this point has not at all been the case.
The market shaking off its initial jitters relating to a failure on healthcare backs up a view that nothing fundamental has changed in the relationship between markets and the administration.
And to argue that now real results are needed on Trump’s economic agenda is to ignore what has gotten markets to where they are, which is a belief that confidence about economic prospects would create the economic conditions markets thought they were reacting to.
Longer-term, then, it will likely be an economic, not a political, outcome that changes the market’s mind. And this week is all politics.
This post was updated after the American Health Care Act vote was delayed.
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Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland
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