Optimism that the Trump administration will be able to drive through a hefty pro-growth plan or tax package this year is fading by the day.
Treasury Secretary Steve Mnuchin on Monday became the latest official to dial back expectations for a time table that included a tax plan by August. In an interview with the Financial Times, Mnuchin said getting tax reform by August was an "aggressive timeline" and would probably be delayed because of health care.
In the bond market, there was little surprise. Bond yields, which move inversely to prices, have been falling for weeks as traders have become more skeptical that Washington will adopt any pro-growth policy this year. Stocks, meanwhile, have traded side ways recently, and the S&P 500 is still up 10 percent since election day, boosted by hope of fiscal stimulus and tax cuts.
Mnuchin's remarks did not surprise markets, and, in fact, stocks rallied hard based on his comments that Treasury is looking at ways to raise funds to pay for the tax plan without the controversial border-adjustment tax.
"That's exactly why the [stock] market rallied. People hate the border-adjustment tax," said Peter Boockvar, chief market analyst at Lindsey Group. The tax is part of the Congressional tax reform plan and would slap a 20 percent tax on all imports but not tax exports. Opponents claim it could cause inflation and penalize consumers, while proponents say it would encourage more manufacturing in the U.S. and level the playing field for U.S. companies.
The market was not surprised by the push back in the timeline for tax reform, since President Donald Trump last week said health care would come ahead of taxes. Ever since Congress failed to vote on health care in March, the market has become increasingly doubtful a tax plan would get done any time soon.
However, the question is whether markets have adjusted enough to the potential for little or no action from Washington this year.