By Tory Newmyer
February 22, 2017

Stocks are still soaring on expectations for the Trump economy while at least some voters are turning increasingly sour. On Wall Street, markets broke records Tuesday, with the Dow Jones industrial average, the S&P 500 and the Nasdaq composite all finishing at new highs. Meanwhile, in firehouses and school cafeterias across the country, Congressional Republicans, back home for their first recess since President Trump’s inauguration, came face to face with voters angry about the new governing agenda. The continued divergence between investor and voter sentiment suggests a reckoning is coming soon.

The hostile crowds swarming town-hall meetings from California to South Carolina on Tuesday turned out to give GOP lawmakers an earful about a range of issues. But the Republican drive to repeal and replace the Affordable Care Act surfaced again and again. Republicans, including Trump himself, have dismissed the roiling public protests as the work of paid agitators. Polls, however, show the law is gaining in popularity, with a CBS survey last month registering 53% support among Republicans for keeping it in place with tweaks while only 41% on the right backed scrapping it entirely. As public sentiment on the issue shifts beneath their feet, and with Trump’s rocky first month in office serving up an abundance of distractions, GOP lawmakers haven’t made much progress toward forging consensus on a healthcare reform plan. The static greeting them back home won’t help. Democrats putting the healthcare overhaul together in 2009 similarly tried writing off mounting Tea Party rage as manufactured, but it made a deep enough impression on lawmakers in swing districts to complicate passage of the law in the first place.

The market rally doesn’t turn on the fate of the healthcare overhaul. But it has been powered in part by hopes of a tax code revamp that slashes corporate rates and seeds new infrastructure spending. And since the tax-writing committees in Congress aim to tackle Obamacare before taking on tax reform, bogging down in the first priority means a delay in getting to the second one. That in part explains why, amid the bullishness, Goldman Sachs has been urging skepticism. David Kostin, the firm’s chief U.S. equity strategist, recently renewed the sentiment, warning clients in a note that “financial market reconciliation lies ahead.” He pointed to “cognitive dissonance” in the market between investor optimism for big change out of Washington and the dimmer real-world prospects for action. “We are approaching the point of maximum optimism and the S&P 500 will give back recent gains as investors embrace the reality that tax reform is likely to provide a smaller, later tail wind to corporate earnings than originally expected,” Kostin writes. If the angry crowds persist, that inflection on Wall Street could be around the corner.

Tory Newmyer
@torynewmyer
tory_newmyer@fortune.com

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