How Sausage is Made

by Ralph Cole
Executive Vice President of Research

The Week in Review

Stocks sold off this week as Congress debated the replacement bill for Obamacare. The S&P 500 was down a little over 1 percent over the past five sessions. Bonds rallied on stock weakness with the 10-year Treasury finishing the week at a 2.40 percent yield.

How Sausage is Made

As Congress debated the American Health Care Act (AHCA) this week, worried Americans became fixated on Washington D.C. and our legislative process. As we have seen in the past, getting complicated bills through Congress takes time, compromise and proper procedure. Americans have been watching the AHCA-filled news this week and, much like making sausage, are learning it can be better not to see the process of it being made.

While the AHCA is very important to many Americans, it is also the first of many agenda items for this year in Congress. The equity markets have rallied in anticipation of positive outcomes for taxes, regulation and infrastructure spending. Failure to pass this first piece of legislation brings into doubt Congress’ ability to deliver in the future. 

In our outlook at the beginning of January, we stated that the market had rallied in anticipation of higher tax cuts than were achievable and fiscal spending amounts that were higher than achievable. This view has started to become a reality. We think the market will pause each time that Congress takes on a new issue. As investors, we are much more attuned at reading economic tea leaves, than political ones. We continue to believe that the U.S. economy is on sound footing and can move beyond the political process in the coming months.

Our Takeaways for the Week

  • Despite the painful process, we believe Congress and the administration will eventually deliver on some of their campaign promises
  • The market took a break to watch Capitol Hill, which sometimes can be a less than appetizing process