A fierce battle over healthcare reform within the Republican Party is causing Wall Street to sharply reassess its optimism about President Donald Trump's economic policy agenda, as evidenced by the sharpest sell-off in stocks this year.
On Tuesday, for the first time since October 11, both the Dow and the S&P 500 closed down by at least 1%.
This rethinking holds ominous implications for a market that has set multiple highs based on Trump's policy promises, in particular a stimulus to the economy from a combination of tax cuts and infrastructure spending.
Now that healthcare has turned into such a debacle that even the country's ruling party and its president cannot agree on even its basic framework, those second and third parts of Trump's legislative agenda are likely to be weakened, delayed, and, in some cases, foregone.
Alec Phillips, an economist at Goldman Sachs (NYSE:GS), said in a recent podcast that he was telling clients to tamp down their enthusiasm.
"If you look at the chronology of this, right after the election there was a discussion about this was going to be a 2017 tax cut," Phillips said. "Now it's clearly a 2018 tax cut. Who knows? It could be a 2018-2019 story ultimately."
As for infrastructure, he said, "what everyone was expecting, we might get a little bit of that, but that's not what's going to be driving things."
Trump has publicly acknowledged that he would have preferred to start his reform agenda with tax cuts now that he realizes what a behemoth healthcare can be. As CNBC's Carl Quintanilla aptly put it, Trump has made the issue of healthcare sound like "the vegetables you need to eat before you get to the good stuff."
The message for Wall Street's hyperbulls? Simmer down.
"The complexity of the problems clearly suggests [tax cuts] will not come before 2018 at the earliest, and neither will any of the planned increases in spending," Steven Ricchiuto, the chief US economist at Mizuho, said in a research note.