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The Markets This Week

March 28, 2017 | Weekly Commentary

Late Friday, Republican leaders pulled their health-care bill before it could be voted on. That hasn’t pulled the rug out from under the bull market, however.

Sure, the Dow Jones Industrial Average dropped 317.90 points, or 1.5%, to close at 20,596.72 last week, its largest weekly tumble since September 2016. The Standard & Poor’s 500 index fell to 2343.98, while the Nasdaq Composite slipped 1.2%, to 5828.74.

And that loss would seem to justify the talk on the Street that the failure to repeal Obamacare jeopardizes the Trump administration’s tax and infrastructure plans—and could cause the market to crater. The fact that the worst-performing stock in the S&P 500 on Friday was Martin Marietta Materials (ticker: MLM), which supplies the gravel and stones used in roads and other infrastructure projects, would only seem to add to the evidence.

Yet Friday’s drop was muted. The Dow, which was the biggest loser among the major averages, fell just 59.86 points, or 0.3%, while the Nasdaq rose 0.2%. “Markets breathed a sigh of relief on the notion that if Republicans can agree to [put the ACA aside] and move on towards tax reform and deregulation, then this is bullish,” says Jason Ware, chief investment officer at Albion Financial Group.

In fact, the major damage was done on Tuesday, when the S&P 500 fell 1.2%, ending its 160-day streak without a 1% drop. And while that decline provided ammunition for those predicting an imminent collapse, it was simply one bad day. “It is, of course, natural,” says Daniel Chung, CEO of asset manager Alger. “Things literally can’t go up forever.”

That hasn’t stopped the bears from looking for danger in every piece of data. Bank lending, for instance, has slowed since the election, and some observers have pointed to that fact as a sign that the animal spirits that were supposed to juice the economy have been a mirage. Deutsche Bank economist Torsten Sløk, however, notes that bank lending is a lagging indicator, and that it usually follows the ISM Manufacturing survey with a delay. The fact that the ISM data has been rising—it recently hit its highest level in two years—suggests that bank lending could increase in the months ahead. “It’s a red herring,” Sløk says.

(Source: Barrons Online)

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