Stock market set to fall as doubts over Trump's agenda build – MarketWatch

This post was originally published on this site

U.S. stock-index futures pointed to a lower open on Monday as investors reassessed the prospects for President Donald Trump’s ambitious economic agenda after the Republican health-care plan was pulled.

Dow Jones Industrial Average futures YMM7, -0.77%  slid 159 points, or 0.8%, to 20,416, while S&P 500 futures ESM7, -0.87%  dropped 19.05 points, or 0.8%, to 2,325.75. Nasdaq-100 futures NQM7, -0.75%  fell 38.50 points, or 0.7%, to 5,340.

The failure of the bill, Trump’s first legislative test as president, raised questions about the president’s ability to push bills through Congress, as well as the unity of the Republican coalition. Markets have rallied since the election on the hope that Trump’s economic proposals—including on taxes and regulation—would accelerate economic growth, and those gains could be at risk if no legislation materializes, especially with stock valuations at lofty levels.

“Financial markets seem increasingly skeptical that Trump will be able to deliver on the many promises that fueled the S&P 500 [to] a peak of close to 2,400 in early March. This will place the emphasis on the economic data, at least until the next debate in Washington is more advanced,” said Michala Marcussen, global head of economics at Société Générale, in a note to clients.

Check out: ‘Trump disappointment trade is now in full swing’ — analysts on the selloff

Major indexes closed mostly weaker on Friday, posting the biggest weekly losses in months after Trump and Republican leaders pulled their health-care bill from a vote. That withdrawal triggered doubts about the rest of the administration’s policy push.

How the GOP health-care bill failed

(1:54)

In a blow to President Trump’s young administration, House Republicans pulled their bill to replace Obamacare after failing to gain support within their own party.

A postelection equity rally — the so-called-reflation trade — has taken major indexes to repeated records. The S&P 500 is up 9.6% since the election, but down 2.2% from an all-time high reached earlier this month.

Need to know: Get ready to move from ‘buy the dip’ to ‘sell the rip’

Last week, the S&P 500 index SPX, -0.08%  fell 1.4% for the week, the biggest stumble since November, while the Dow industrials DJIA, -0.29% dropped 1.5%, the largest loss since September. The Nasdaq Composite Index COMP, +0.19% logged its biggest weekly loss since December, falling 1.2%.

Watch the VIX

Another warning signal for investors may have been seen in the CBOE Volatility Index VIX, +12.81% The index, also known as Wall Street’s fear gauge, shot above 14 for the first time this year on Friday. The VIX was up about 13% to 14.63 on Monday. It’s still below its historical average of 20, but higher readings can be a sign of elevated anxiety, which may lead to market pullbacks.

Investors who have been completely ignoring valuations may need to reconsider those metrics, as most are indicating “overstretched prices,” said Hussein Sayed, FXTM’s chief market strategist, in a note to clients.

In a “momentum trade, driven by very optimistic expectations, very few care about current valuations. But if you believe that Trump’s honeymoon is over and last week’s experience is just a guide on what to expect next, I believe markets will sell off sharply, probably up to 10% correction,” said Sayed.

Read: Wall Street fear threatens a dramatic comeback in the stock market

Economic docket: There are no top-tier data on the economic calendar Monday, but a few Federal Reserve speakers will be on tap.

Chicago Fed President Charles Evans is due to give a speech on the economy in Madrid, Spain at 1:15 p.m. Eastern Time, while Dallas Fed President Rob Kaplan is scheduled to discuss economic conditions and role of monetary policy at Texas A&M University at 6:30 p.m. Eastern.

See: The U.S. economy doing OK even if official figures show a low score

Stocks to watch: Snap Inc. SNAP, -1.69%  shares rose more than 5% in premarket trading after RBC analysts initiated shares at overweight, with a $31-per-share price target. Meanwhile, J.P. Morgan initiated the Snapchat parent at neutral with a $24 price target.

United Airlines UAL, +0.64%  shares could garner attention on Monday after a social media storm over the airline stopping two girls wearing leggings from boarding a flight.

Apple Inc. AAPL, -0.20%  may draw attention after a Chinese court overturned a ruling against the company over iPhone patents, a win for the tech giant in one of its toughest markets.

Other markets: European stocks SXXP, -0.65%  tracked the global equity pullback, led by weakness for banks.

Asian stocks finished mostly lower, with the Nikkei 225 index NIK, -1.44%  closing down 1.4%. That came as the Japanese yen, which tends to attract buyers in times of economic and political uncertainty, surged against rivals. The dollar USDJPY, -1.06%  hit its lowest level against the yen during Asian trade since the November election.

Meanwhile, gold GCJ7, +0.75% another haven asset, rose $9.50, or 0.7%, to $1,257.90 an ounce. WTI oil futures CLK7, -0.92%  fell 45 cents, or 0.9%, to $47.53 a barrel.

Read: These 5 charts show how Trump’s health-care flop is hitting markets

More from MarketWatch