After falling 1.4% last week, the S&P 500 rebounded, rising 0.8% for the week. The benchmark index wrapped up a solid first quarter (+5.5%), which was overshadowed by an even better performance from the Nasdaq, which gained 1.4% for the week, extending its first quarter gain to 9.8%.
There's no question that the GOP's failure to compromise on health care reform last Friday left an impression on this week's activities, maybe most notably on Monday. Investors kicked off the week cautiously as it remains largely unclear how the failure to bring the American Health Care Act to a vote will impact the widely-anticipated tax reform legislation.
In addition, investors are also starting to question the new administration's ability to find middle ground with some of the more conservative Republicans in Congress. This issue will certainly manifest itself in the debate on tax reform as the party remains divided on the need to include a border adjustment tax in the overall fiscal overhaul.
Despite the looming uncertainty, the S&P 500 bounced off its 50-day moving average on Tuesday to post its best performance of the week. House Speaker Paul Ryan and Majority Leader Kevin McCarthy stoked the fire by leaving the door open to revisiting health care reform. This was contrary to earlier remarks from President Donald Trump, who vowed to move to tax reform without looking back. For investors, if the GOP can cut health care costs, the savings could support a larger tax break.
Crude oil took center stage in the middle of the week following a bullish inventory report from the EIA and rumors that the OPEC/non-OPEC production cut may be extended beyond June. The energy component went on a three-day rally while the energy sector helped the stock market finish slightly higher on Wednesday and Thursday.
Equities closed out the week, and the quarter, with a flat showing on Friday that kept the S&P 500 inside an eight-point range.
A week of mostly hawkish talk from Federal Reserve officials brought rate hike expectations back to levels from two weeks ago. The implied probability of a rate hike in June climbed to 62.5% from last week's 49.6%, according to the fed funds futures market.
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