Legislation Consolidation in Stocks

The primary US stock market yardstick, the SP 500 Index rallied 17% into March 1st from the spike low on election day. In almost 5 months of stellar gains, the market has yet to experience more than a 2% correction on a closing basis and 3% intraday. Until March our advice has been to avoid waiting for corrections and keep investing as too many sat on their hands assuming a better entry ~5% lower was due. While 5% is not scary, the growing pent-up demand prevented such an ideal pullback.
Now that we have entered a new political phase where market expectations require being fed a dose of ‘real’ legislative success, we are in stall mode. The reality is setting in that the arduous hurdle of replacing Healthcare and Tax Reform will be delayed until late 2017 – at the earliest. No longer are we anxious to pay expected 2018 earnings today and Buy at any price. Throughout March we have been talking of consolidation. The chart below is essentially unchanged from previous iterations we have shown. This consolidation could last longer and correct further, but supportive economic data, deregulation orders and normalized household income growth provide support while Trump searches for legislative success to break out of the current incertitude.

This post was published at FinancialSense on 03/31/2017.