Last Friday, Congress decided not to change The Affordable Care Act by not even voting on its potential replacement, The American Health Care Act. While it's debatable if this is good for the country or not, this failure is causing some Wall Street investors to wonder what it means for President Trump's pro-business economic policies – tax reform and infrastructure spending.
There are two viewpoints: The first is that this health care defeat weakens the Trump administration's influence over policy in general, making it more difficult to get anything passed. The second is that it allows the administration to move past a very complex subject in health care, so they can focus on important economic policies, such as tax reform. This latter viewpoint is valid and likely to happen; however, at Simply Money Advisors, we expect this setback to introduce uncertainty into the market, possibly triggering some short-term turbulence for stocks in the weeks ahead.
Even though we expect stock market movement to pick up, it's highly unlikely that this bull market is near its end. Even strong years have bouts of instability. For example, in 2013 when many major stock markets saw returns above 20%, large U.S. stocks had five large pullbacks throughout the year measuring -3%, -4%, -5%, -5%, and -8%. You, as an investor, need to be worried about recessions because recessions have been the main reason stocks have historically seen large pullbacks. At Simply Money Advisors we continually monitor the risk of a recession, and fortunately the risk of a recession over the next six to nine months is low.
The most important economic releases this week are the final estimate of the country’s GDP (Gross Domestic Product) for October, November, and December of 2016, personal income and spending, inflation numbers, and The University of Michigan sentiment survey (this measures how you, as a consumer, are feeling right now). There will also be 14 speeches from members of the Federal Reserve, our nation’s central bank. They may take this opportunity to refine their message on how quickly they could continue raising interest rates this year. Currently, there is about a 50% chance of another hike by June.
The Simply Money Point
If the fallout from the health care vote continues to hit stocks over the next few weeks, don't overact to any dire headlines and stay true to your financial plan. Remember that stock declines are normal. In fact, they’re part of a healthy market cycle.