Over the last week the S&P 500 suffered losses that brought it down 50 points off of the highs achieved in early August.
This has some on Wall Street asking if the exuberance of a Trump presidency is starting to wane. And reality is starting to set in.
On election night after the briefest of corrections in the market the market began to soar. Wall Street traders and money managers started to dream dreams of significant financial regulation. They dreamt of Obamacare being repealed. They slept deep comfortable sleeps knowing that would deliver comprehensive tax reform.
Now I believe they are beginning to wake up sweaty in the middle of the night realizing that we may not see any tax cuts with any weight. Comprehensive tax reform is a pipe dream at this point. Repealing Obamacare is all but off the table. The Trump rally may be drawing to a close as reality is beginning to set in.
This is not to say that Trump did not try to pass all of these measures. In the end it was of course the Democrats and members of his own party that blocked these potential legislative measures one by one.
Back during the reign of Alan Greenspan as Federal Reserve chairman, a term was thrown around called the ‘Greenspan put’. Basically, the markets knew that if things got rocky in the markets Greenspan would step in and lower rates or keep rates low.
Throughout the Trump presidency the Federal Reserve has been signaling that they are looking to both raise interest rates and shrink their balance sheet. Both things that are not meant to prop up the markets. So if a Janet Yellen put is not in place Trump is attempting to create a floor for the market. He is attempting to do it with a trillion dollar infrastructure plan.
A few posts back I talked about how without the Yellen put in place Trump is set up as the fall guy. Especially as he has been bragging about the market hitting new highs and taking credit for it. Trump may now be seeing the reality of the situation. If the infrastructure stimulus package does not work, look out below.