LONDON: While the Trump era has brought enormous turbulence to Washington, that volatility has been missing on Wall Street. In fact, the S&P 500 hasn’t fallen 3% from a previous high point (over one day or several days) since the slump that ended on November 4, 2016, four days prior to the election.
That 388-day stretch is the longest the S&P 500 has ever gone without a 3% or more retreat, according to Bespoke Investment Group. (It’s 18 days longer than the previous record, which was set in 1995.)
It’s a remarkable achievement. The S&P 500 is up a ton since the 3%-decline streak started — 25% to be exact. It’s also surprising because investors famously hate uncertainty, and that’s exactly what President Trump’s unpredictability brings. And yet the VIX volatility index touched an all-time low on Friday.
So what could puncture this record-long period of tranquility for Wall Street?
One possible trigger would be the failure to enact tax cuts. Goldman Sachs recently warned that the S&P 500 could tumble by 5% if tax cuts aren’t enacted.
A vote on the Senate tax bill could come as early as this week. The Senate legislation would save many big companies a ton of money by permanently slashing the corporate tax rate in 2019 from 35% to 20%. The question is whether the heavy cost of those tax cuts will cause deficit hawks like Republican Senators Bob Corker and Jeff Flake to oppose the plan.
If the legislation gets through the Senate, it will have to be reconciled with the bill the House passed earlier this month and that process could be messy.