The death of the Republican healthcare reform may not prove to be the knife to the heart of the bull market some had feared, but to keep the Trump Trade alive investors should temper expectations for the breadth of expected tax cuts. Anxiety over prospects for the healthcare bill gave stocks their largest weekly drop since the November presidential election. But its failure to pass could also force the Trump administration to come up with a palatable tax reform that could deliver this year some of the stimulus Wall Street has rallied on. The S&P 500 rose as much as 12 percent since the surprise Nov. 8 election win President Donald Trump, mostly on bets that lower taxes, deregulation and fiscal stimulus would boost economic growth and corporate earnings. As he acknowledged defeat for the healthcare bill, Trump said Republicans would likely pivot to tax reform. Bets on that shift in focus were seen in stocks late on Friday, as the market cut its day losses when news of the health bill being pulled emerged."The market believes it raises the probability of a tax cut later this year since Trump is showing more strategic behavior. (It) puts the market a little more at ease," said Paul Zemsky, chief investment officer of multi-asset strategies and solutions at Voya Investment Management in New York. On the campaign trail Trump promised to lower the corporate tax to 15 percent. In order to make the tax reform revenue-neutral, and agreeable to the most money-sensitive wing of his party, his administration counted on savings from the health bill that will no longer materialize.
"If we want to get something passed by the August break, it’s going to look a lot like tax reform light,” said Art Hogan, chief market strategist at Wunderlich Securities in New York."If we settle somewhere between the 25-30 percent corporate tax rate, that is far from the 15 percent offered in the campaign trail and the 20 percent currently in the House plan, (and) I think that’s where we end up."Softer cuts in corporate taxes leave stocks vulnerable after a rally on hopes for more, he said.
"It’s not a negative, it’s just not the positive the market had priced in."Aside from Trump's pro-growth agenda some investors have pointed to an improving global economy and expectations for double-digit growth in corporate earnings as support for the lofty valuations in stocks."The evidence suggests to me that there is some Trump fairy dust sprinkled on this rally. That said, the underlying fundamentals do look better," said Alan Gayle, director of asset allocation at RidgeWorth Investments in Atlanta, Georgia.
A survey on Friday showed Germany's private sector grew at the fastest pace in nearly six years in March, suggesting an acceleration in growth for Europe's largest economy in the first quarter. Stocks could also turn to earnings to justify their price. First quarter earnings are expected to grow by more than 10 percent, according to Thomson Reuters data. In another sign of investor bullishness, February's reading on consumer confidence touched its highest level since July 2001. If earnings fail to deliver double-digit growth, stocks could again be seen as too expensive. At $18 per dollar of expected earnings over the next 12 months, investors are paying near the most since 2004 for the S&P 500. "The advance we’ve had and the large spike in confidence, the expectations on the economy and earnings expectations - we continue to believe it is too high," said Julian Emanuel, executive director of U.S. equity and derivatives strategy at UBS Securities in New York.
U.S. President Donald Trump on Friday touted Charter Communications Inc's decision to invest $25 billion in the United States and a plan the company announced before he was elected to hire 20,000 workers over four years. At a White House event with the second-largest U.S. cable company's Chief Executive Thomas Rutledge and Texas Governor Greg Abbott, Trump praised Charter for planning to close its offshore call centers and move them to the United States. Much of the announcement was not new. Charter said last May that it planned to add 20,000 jobs as part of its merger with Time Warner Cable and acquisition of Bright House Networks. As early as June 2015, Rutledge said Charter would need an additional 20,000 employees after those deals. On a number of occasions, Trump has touted job announcements at the White House that had been previously planned or announced The company said more than a year ago in February 2016 that it planned to close foreign Time Warner Cable call centers and move the jobs to the United States. On Friday, Trump said, "We're embracing a new economic model - the American Model. We’re going to massively eliminate job-killing regulations - that has started already, big league - reduce government burdens, and lower taxes that are crushing American businesses and American workers.
"You’re going to see thousands and thousands and thousands of jobs, of companies, and everything coming back into our country."Charter, which has 24 million residential and business customers in 41 states, said on Friday it had committed to Trump to hiring those workers within four years. It plans to invest $25 billion in broadband infrastructure and technology in the next four years. In May 2016 Rutledge said in a recorded interview there would be some overlap in management positions (after the TWC merger) but said the company would hire about 20,000 people over four years.
Rutledge said the broadband investment was being made "in the right regulatory climate and right tax climate ... We’re committed to spending that predicated on the kind of regulatory consistency and efficiency that we expect as a country."Charter agreed in May 2016 to make significant broadband investment under a deal with the Federal Communications Commission that was part of winning approval to acquire the cable networks. At that time Charter agreed to extend high-speed internet access to another two million customers within five years, with one million served by a broadband competitor. Federal Communications Commission chairman Ajit Pai said in a statement on Friday that the commission was "working to set rules of the road that encourage companies to build and upgrade broadband networks across the country." He credited the FCC's "investment-friendly policies" in part for Charter's commitments.
The agency is considering a petition by the American Cable Association to strike the requirement Charter extend service to areas already served by companies because it could harm smaller competitors. Charter also touted its plans to open a new bilingual call center in McAllen, Texas and said it expects to employ 600 there by the end of 2018. Plans to open a call center in Texas were announced last October. In December, Trump announced that telecommunications group Sprint Corp and U.S. satellite company OneWeb would bring 8,000 jobs to the United States, and the companies said the positions were part of a previously disclosed pledge by Japan's SoftBank Group Corp. In January, Sprint Chief Executive Marcelo Claure said of its decision to shift 5,000 call center jobs to the United States that the company "had plans to do this for a while."