The IBD/TIPP Economic Optimism Index fell to 51.7 in April, down from 55.3 in March. After hitting a 12-year high of 56.4 in February, optimism has fallen almost all the way back to where it was at the start of November, before the surprise election of Donald Trump.
The polling, from March 24-30, came after President Trump pulled the plug on House Speaker Paul Ryan's bill that would have repealed and replaced ObamaCare but potentially increased the ranks of the uninsured by 24 million.
The IBD/TIPP Economic Optimism Index at the start of April remained just above its pre-Trump level, 51.7 vs. 51.3, and holding above the neutral 50 level. Yet two of the IBD/TIPP Poll's three major subindexes, optimism about the six-month economic outlook and satisfaction with government economic policies, have fallen below their pre-election levels. The third subindex, a gauge of optimism about personal financial prospects, remains moderately above its pre-Trump level, undoubtedly helped by the postelection rally in the Dow Jones industrial average, S&P 500 index and Nasdaq composite.
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The question for markets will be what to make of the sudden drop in Trump-fueled economic optimism. It's possible that the decline could be a fleeting response to the failed GOP effort to repeal ObamaCare, or it could signal lower confidence that Trump will enact a positive economic agenda.
The risk is that a pullback in economic optimism will carry over to the business sector, paving the way for a soft patch in activity after a burst of hiring and a ramping up of manufacturing activity.
On Monday, the 10-year Treasury yield fell to a one-month low of 2.34%, the lowest level since Federal Reserve policymakers surprised markets by indicating that a quarter-point interest-rate hike was coming at the March 15 meeting.
The Nasdaq composite briefly hit a record high Monday morning, but reversed lower. The Dow Jones industrial average and S&P 500 index finished slightly in the red after finding support at their 50-day moving averages.
Disappointing March auto sales from General Motors (GM), Ford (F) and others seemed to carry more weight with investors than another strong report on manufacturing activity from the Institute for Supply Management. U.S. auto sales sank to a two-year low, as GM inventories surged.
"The unexpected dip in March auto sales is the latest hard data release to suggest that the Trump reflation trade may have run its course," wrote Steven Ricchiuto, chief U.S. economist at Mizuho, noting that the auto sector had been "a big part of the upside momentum in the economy."
Still, bank stocks, which stand to benefit from faster growth, higher interest rates and a steeper yield curve, bounced back from a midmorning bout of selling on Monday. Shares of Bank of America (BAC) finished unchanged, while Wells Fargo (WFC) and Dow component Goldman Sachs (GS) each lost 0.3%. BofA, Wells Fargo and Goldman are all trading below their 50-day lines.
IBD'S TAKE: Infighting among Republicans amid high and rising public debt levels is diminishing the prospects for President Trump's tax cuts and infrastructure spending.
While the headline reading of the IBD/TIPP Economic Optimism Index no longer shows a clear Trump effect, the change in the White House is still obvious below the surface. Among Democrats, optimism slid further to 35.8, down from 61.6 just before the election and the lowest since July 2008. Among Republicans, optimism has pulled back to 72.8 from 80.4 in February, but remains far above its pre-Trump level of 44.3.
The optimism reading among independents has fallen to 48.6 vs. a January peak of 56.7 and almost back to the 47.5 just before Election Day.
Poll respondents with income below $50,000 a year are more pessimistic about the economy than before the election, while those above $50,000 are more optimistic. In November, men and women were equally optimistic (51.4). Now optimism among men is 10 points higher than among women (56.7 vs. 46.7), an unprecedented gap in the history of the IBD/TIPP Poll.
Likewise, optimism among self-described investors is 7.4 points higher than among noninvestors, a record gap that underscores the importance of the Trump stock market rally on confidence.
In April, the gauge of the six-month economic outlook fell to 51.1, down from 53.6 in March and 52.2 in early November.
The personal financial outlook index slipped 1.3 points in April to 61.3, still higher than November's 58.9 reading.
The measure of confidence in federal economic policies slumped 7 points to 42.6, even worse than November's 43.1 reading. The index had signaled optimism for the first time in a decade in February.
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