Wall Street's predilection for a glass-half-full view of President Donald Trump was on full display Friday as investors backed off fears that a failure to repeal Obamacare would endanger Trump's entire agenda in favor of optimism that he would simply get on with tax cuts and infrastructure spending.
As the clock ticked down to a close vote in the House of Representatives set tentatively for Friday afternoon, U.S. stocks were little changed even as it appeared that the Republican leadership had yet to secure the support needed to pass the measure.
That was in stark contrast with earlier in the week when equities suffered their biggest one-day drop since the November election on grounds that the shaky prospects for a successful repeal of the Affordable Care Act - known popularly as Obamacare - was a litmus test for everything championed by Trump.
"I think investors are of the belief that Trump is just going to pivot to taxes," said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago. "I think it's a pivot from what we saw on Tuesday."
Indeed, Trump delivered lawmakers an ultimatum late Thursday, saying the time for negotiation had ended and that he was willing to leave the ACA in place and get on with his other priorities. S&P E-mini futures rallied about 0.25 percent in overnight trading following the statement.
"If this goes on the back burner, and they start addressing corporate tax rates or infrastructure, that would be a positive for the market because the administration is not going to look at this and say, 'Hey, this thing is going to take a while.' They want to win," said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama.
"So they will go on to something that they could get through more quickly, which will be beneficial to the market," Hellwig said.
U.S. stocks have rallied hard since Trump was elected on Nov. 8, with the benchmark S&P 500 gaining around 10 percent in that span. Most of the gains have come as investors embraced prospects for the pro-growth and pro-business agenda Trump touted during his campaign.
But more recently, doubts have arisen over Trump's ability to deliver on the agenda as the effort to repeal Obamacare grew more rancorous. Stocks have drifted sideways for the last several weeks.
Even amid the more sanguine mood on Friday as the vote approached, not all investors were ready to embrace the notion that a failure to repeal Obamacare could be so readily overlooked given how far the market has come since the election.
"If the Republicans cannot settle their own conservative-moderate division on healthcare then that divide will be exacerbated for any other issue they attempt," said Joseph Trevisani, chief market strategist at Worldwide Markets in Woodcliff Lake, New Jersey.
Still, with less than about 90 minutes to go to the House vote, there was little evidence of the angst evident earlier in the week when investors saw the vote as a clear pass-fail test for Trump's agenda.
"I think what Trump did by saying that they are going to take a vote and if it doesn't go they will move on to the next item is kind of a positive thing, because I think the more important things are fiscal stimulus and tax reform," Tom Tucci, head of Treasuries trading at CIBC in New York said.
"I know a lot of people are saying this will foreshadow the battle there, but I think there’s a lot more support on that end."
(Reporting by Dion Rabouin, Karen Brettell, Caroline Valetkevitch and Sinead Carew; Writing by Dan Burns; Editing by Leslie Adler)