Ryancare Vote is Delayed

The stock market sold off in response to the news that the healthcare bill’s vote in the House of Representatives wasn’t going to take place Thursday. As I said, the leadership usually doesn’t put up a vote if it knows it will lose. Once leadership realized it would lose, they postponed the vote. While the leadership threatened individual members with being "primaried" if they voted against the bill, leadership had its own risk in the matter. If the bill was voted on and failed, there would be pressure to change the leaders of the party. If healthcare reform isn’t passed, Paul Ryan could lose his position as Speaker of the House.

Going into the day, there had been conflicting reports about whether the House Freedom Caucus would support the bill or not. When I wrote my last article on the topic, John Harwood had been reporting that the House Freedom Caucus may support the plan because the leadership changed the part of the plan surrounding essential care. That was what led me to lean in the wrong direction over the odds of the bill passing the House. There were many reports today which were at odds with each other. This caused the market to change directions constantly throughout the day as you can see in the chart below.

Being that this is important legislation, it’s expected that there would be contentiousness and deal making before it squeaks through. If healthcare problems were easy to solve, they would have been solved decades ago. The structure must change because expenses have been rising faster than inflation. The other cost which has been rising faster than inflation is college tuition. In the past few years, enrollments have dropped as a result. It’s unfortunate that it isn’t as focused on in the media because it only effects a subset of the population. As you may be able to tell from my tone, I think the contentions over the healthcare plan are healthy for the country as the best ideas will get pushed forward. Obviously, it would have looked much better if something had gotten passed.

It’s tough to comment on the specific contentions with the plan and swings in the market because changes happen so fast. The moment after I type a sentence claiming a faction supports something, it can change its mind. At this point, I’m operating under the assumption that nothing will get passed in the near-term, but all parties are still at the negotiating table.

As you saw from today’s action in the stock market, calling it a selloff may be an overzealous description. The swings were mild. I had said the stock market may finally have a 5% correction if the plan doesn’t go through the House. While the Dow is having its worst losing streak in 7 months, the selloff has been moderate. The S&P 500 is only down 2.4% from its all-time closing high. The reason why I have been wrong thus far is because the situation isn’t as black and white as I made it seem. This is not a situation where either something was going to pass on Thursday or healthcare reform is doomed. It is more nuanced than that. With the unorthodox and sometimes disorganized way Congress works compared to the private sector, there can always be short delays where something is worked out. In fact, as you can see with the debt ceiling being reached in March, the government is the king of delaying things.

Therefore, the reason stocks didn’t sell off harder than 2.4% is because the healthcare plan vote being delayed is not a death knell for the legislative process. If anything, it’s to be expected. As I mentioned in a previous article, it’s still very early in President Trump’s term. Passing a solution to healthcare in the first few months was always an ambitious task. If the debate becomes so contentious that one side walks away from the negotiations, then stocks will fall harder.

I must make one clarification about a point I made in my last article on this issue. I mentioned that it didn’t matter in the long run if tax cuts were passed in November 2017 or May 2018. To clarify, I meant it wouldn’t matter to the future of the country. I did not mean the timing of tax cuts wouldn’t affect the market in the short run. The reason it will affect the market is doubt starts to sink in when the process gets delayed. The odds of tax cuts not getting passed at all increases which is reflected in the daily changes in stock prices.

This news on healthcare reform supports my ongoing thesis that fiscal stimulus will be delayed and may not be as positive for the economy as its anticipated to be. The government cannot specifically improve the demand individual small businesses see. Therefore, the optimism coming from small business owners, as seen in the NFIB small business index, is likely too high even if the best-case scenario for fiscal stimulus occurs. My thesis is that the consumers and business owners aren’t thinking things through when they express positivity in surveys.

The fact that it has been a battle to get healthcare reform through Congress means the same will likely happen to infrastructure stimulus and tax reform plans. The conservatives enforcing their agenda could mean tax cuts will be deeper and infrastructure spending will be lighter than anticipated. It’s important to understand that the infrastructure spending will be on repairs and not new projects which means the benefits to the economy will be muted even if the promised $1 trillion plan is fulfilled.


In summary, the vote on healthcare reform didn’t happen on Thursday like was initially expected. This doesn’t mean the process is over. A deal can be struck at any time in the next few weeks or days. The main takeaway from today is that the future of healthcare reform and subsequent fiscal policies is more uncertain. The market historically hasn’t liked policy uncertainty, but this bull market has tiptoed past the graveyard up until this point. I don’t expect that trend to continue if the healthcare reform debate starts to fall apart. It’s tough to say if it is falling apart or coming together because of the conflicting reports.

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