Senate Republican leaders scrapped plans for a vote on TrumpCare this week, acknowledging that there’s no quick fix for a bill that’s opposed by both conservatives and moderates.
The afternoon news wasn’t much of a surprise after Sen. Susan Collins became the second moderate to oppose the bill following the Congressional Budget Office analysis on Monday showing that it would cut the ranks of the insured by 22 million.
While it’s not clear how much of Tuesday’s selling was tied to TrumpCare, markets stumbled back in March when ObamaCare repeal looked to be in danger, diminishing investor confidence that President Trump can push through his fiscal agenda of tax cuts and infrastructure spending.
On Tuesday, the Nasdaq composite led the way lower, falling 1.6% on the stock market today. Meanwhile, the Dow Jones industrial average was off 0.5% and the S&P 500 index 0.8%.
While expectations for corporate tax cuts have moderated since the spring, Wall Street strategists still expect a moderate tax cut to pass early in 2018, providing a boost to after-tax earnings estimates. But the longer the TrumpCare debate drags on, the narrower the window for passing tax cuts. Further, the conservative-moderate split over GOP Medicaid cuts may continue to cause problems, since the next step before cutting taxes will be to pass a 10-year budget that doesn’t explode the debt.
Other factors seemed to be influencing stocks as well. Shares of Alphabet (GOOGL) fell 2.5% after the European Union fined Google $2.7 billion in an antitrust case. Google’s parent company is trading below its 50-day moving average for the first time since mid-April.
Meanwhile, bank stocks including JPMorgan Chase (JPM) were higher as Federal Reserve Chair Janet Yellen and Vice Chairman Stanley Fischer both talked about high asset values, including equity valuations. Some on Wall Street think the Fed is quietly targeting stock prices with its plan to begin shrinking its balance sheet. Treasury yields rallied Tuesday on Yellen, Fischer and European Central Bank President Mario Draghi.
Yellen said she doesn’t expect another big financial crisis “in our lifetime,” a good sign for banks heading into Wednesday, when the Federal Reserve will release the second round of stress-test results, including approval of buyback and dividend plans.
JPMorgan Chase stock rose 0.9%, close to a buy point, helping limit the Dow’s losses.
UnitedHealth Group (UNH), another Dow component and the nation’s largest insurer, dipped 0.35%. While UnitedHealth has mostly exited the ObamaCare exchanges, Medicaid managed care is an important market for the company. TrumpCare would kill off a health insurance tax, which UnitedHealth, Anthem (ANTM) and other insurers have lobbied to achieve. Anthem fell 0.5%.
IBD’S TAKE: Although the Nasdaq’s progress has stalled in recent weeks amid a tech downdraft, the overall market remained in a confirmed uptrend through Monday. Make sure to read The Big Picture column each day to get an immediate read on the latest market action and what it means for investors.
While knocking 15 million people off Medicaid and sending them to the individual market to buy coverage with a tax credit, the Senate TrumpCare plan still manages to save $408 billion compared with the cost of ObamaCare tax credits for private insurance, the CBO said.
That’s because “few low-income people would purchase any plan,” the CBO said, either because premiums for comprehensive coverage are out of reach, or deductibles for lower-cost plans amount to an untenable percentage of income — more than one-third of income in some cases.
The CBO found that the Senate bill would save about $200 billion more than the House bill, giving Senate Majority Leader Mitch McConnell some money to work with in trying to win over moderate support. Still, the coverage losses are so deep that it’s hard to see how he’ll suddenly come up with an answer that’s eluded the GOP for more than seven years since ObamaCare first passed.
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