Image via Chris McNaught/Wikimedia

The GOP’s failure to get its American Health Care Act to replace Obama care passed has negatively impacted investor sentiment. It will result in a significant market correction of at least 5% to 10% for the S&P 500 from its March 1, 2017 all-time high. It will also result in a contraction for the index’s price earnings multiple which was most recently near its historic high.

Since Trump was elected the stock market has been steadily ascending. According to many professionals has been priced for perfection. See the perfectly timed at the all-time high March 1, 2017 article “The Stock Market is Priced for Perfection”. The chart below depicts the market’s volatility during the 20 months prior to Trump being elected on November 8th. It also depicts the steady ascent by the market without a correction over the past four months.

The Republican Party gained control of the White House and maintained control of the Senate and the House of Representatives after the November election. For this reason, it was widely assumed that all of the items on Trump’s legislative agenda would be easily ratified by Congress. The one slam dunk item on every Republican’s list was the repealing and replacing of Obamacare.

That the GOP could not muster enough votes to pass its healthcare bill to replace Obamacare was a shock. President Trump’s blaming for the bill not being passed due to a lack of support from Democrats spoke volumes.

With the failure by the GOP to pass the healthcare bill investors can no longer assume that Trump can get everything on his wish list passed. The result is a significant change in sentiment for the first time since Trump was elected President. The lowering of the probability that Trump can get his tax cut, infrastructure spending and increased defense spending proposals passed or passed on a timely basis will result in profit taking and lower share prices. The stock market’s making this adjustment is inevitable.

Based on its Friday close the S&P 500 is within 3% of its all-time highs. The market has not experienced anything more than a minor correction since 2008. Additionally, the last minor correction for the stock market occurred in July 2015.

The stock market is ripe and ready for a significant correction. Professional money managers look for excuses to take profits for their clients. This is especially when the market is within reach of its all-time highs. Upon the correction happening the market will not eclipse its all-time high that made earlier this month until 2018 or 2019 for the following reasons:

  • The rationale to support the market being priced for perfection is gone. Price to earnings multiples will no longer expand and instead contract.
  • The GOP’s failure to get the bill passed provides the rationale for professional investors to remain on the sidelines and in cash after the correction has happened.

The video below entitled “Crash & 90/10 Crash Protection Strategy” explains the only fail-safe strategy that investors can utilize to protect their liquid assets from crashes, major corrections and recessions:

My January 3, 2017, www.equities.com article titled “Markowski: Predictions and Top Pick for 2017”, provides the rationale for my predicting that the S&P 500’s close for 2017 will be lower than its close for 2016. Additional post-election articles that I produced about the impact that President Trump will have on the economy and stock market are below:

Hangover from Trump Market Party to Cause Recession; History Repeats Itself

Dec 2, 2016

Trump Brings Small Company Tailwinds, Big Company Headwinds

Nov 21, 2016

Nationalism and Protectionism Now Being Priced Into US and Global Markets

Nov 15, 2016

The Post-Election Crash of Bonds Increases Risk for the Crash of Stocks

Nov 15, 2016

For an overview and access to links to the subjects that I cover, including the digital economy, negative rates, perfect shorts, and micro-cap stocks please go to www.michaelmarkowski.net.