April seemed to be a “show me” month in the market with a modest 1.03% gain in the S&P 500 as investors turned their focus from a stalled political agenda to corporate earnings. Although the S&P 500 is up 7.16% year to date through the end of April, the market has paused while investors question the administration’s ability to enact its pro-business agenda.
The post-election rally was spurred by expectations that the President and Congress will enact pro-growth proposals to cut taxes, loosen regulations, and ramp up fiscal spending amid a backdrop of an improving US economy and solid corporate earnings. However, once the healthcare legislative proposal was pulled in March, the market experienced its first 1% drop since last October as the administration’s ability to push through its policies has been called into question. With the US stock market at or near all-time highs, some investors have become increasingly concerned that political expectations may be too high and the market has moved too far, too fast without actual corporate profit growth.
Record highs, in and of themselves, are not worrisome, but of course trends don’t continue in perpetuity. It has been a year since the last correction, or a 10% market decline. The S&P 500 declined 14% in February 2016. It has been more than seven months since the last 5% decline (6% in June 2016). Long periods of stability are not good indicators of stock market declines, but it’s reasonable to anticipate that the market will ebb and flow with President Trump’s ability to get his agenda through Congress.