Markets Mixed after Healthcare Vote Postponement; Traders Use Weekend to Assess Damage

The reaction in the financial markets on Friday to another postponement of the vote in Washington on new healthcare legislation was mixed. With the vote coming late in the day and about 30 minutes before the stock market close, there just wasn’t enough time to get a viable assessment of how investors felt about the event.

We do know that the Dow gave back all of its earlier gains and was about 100 points lower before the postponement was announced. By the end of the session, the Dow had recovered about 50 points. Over the week-end investors will be evaluating the events from Friday and we should know early Monday if they thought the postponement was good news or bad news for stocks, and for that matter the U.S. Dollar.

Ultimately, the direction of the major asset classes – stocks, Treasurys, Gold and the U.S. Dollar – will be determined by the direction of U.S. Treasury yields. Ahead of the vote, the general perception for traders was to buy T-Bonds if the vote was “no”. And to sell T-Bonds if the vote was “yes”.

Since the T-Bond market trades inverse to interest rates, a “no” vote will mean lower Treasury yields and a “yes” vote will mean higher Treasury yields.

Lower yields will make the dollar a less-attractive investment and probably drive down the U.S. Dollar against the Japanese Yen. It should also be supportive for dollar-denominated commodities like gold and silver. Both commodities would likely weaken if the dollar increased in value.

The direction of the stock market is more difficult to assess. The postponement of the vote is seen as a negative to some investors because it may mean that President Trump will have a hard time selling his tax reform, and other fiscal stimulus plans. This will be bad for stocks because investors have pumped up prices in anticipation of an aggressive stimulus package.

Optimistic investors believe this is good news because it means the Trump administration can move unto the tax reform legislation and come back to the healthcare plan later. To these investors, it is important to get some tax relief for businesses and individuals as soon as possible then worry about healthcare later.

Come Monday, keep an eye on the Treasury yields. They will tell us how investors have interpreted the postponement news. The clash between investors will be over those who are reacting emotionally and those who are looking at the numbers. While the emotional trader may consider this a major setback for Trump, the investor focusing on how it impacts business may have a more optimistic outlook.