The S&P 500 chalked up yet another low volatility day on Monday as the equity markets continue to question the likelihood of significant tax reform. At present, it appears that several GOP senators are probably aligned against the bill, including Bob Corker, Jeff Flake and James Lankford. It is notable that Senator Rand Paul, who I have observed to be a very consistent voice for traditional conservative ideas such as small government and low taxes, has endorsed the current version of the Senate bill. In an article for Fox News, Senator Paul stated that he is pleased with the new proposed bill because it eliminates the Obamacare mandate and makes significant across the board cuts on taxes. However, since the current version is what he endorses, any significant changes to it would likely cause him withdrawal his support.
What appears to be happening in my observation is that a relatively small group of GOP senators are focused on essentially an all-or-nothing approach to this bill. Some of the concerns are no doubt legitimate, but to be honest it appears that some of them have an undisclosed interest in making sure the bill doesn’t pass. After all, this is something that the GOP has campaigned about throughout the Obama administration and during the 2016 election. Therefore, my suspicion is that the bill is more likely to fail at this point than to pass, which means that the markets are likely to decline substantial in the event that the bill does not move forward. At any rate, we’ll see what the ultimate outcome will be as we move into early December. Until then, expect the markets to continue to realize low volatility.