Trust me, I'm just as tired of writing about the so-called "Trump Trade" as you are reading about it, but the fact remains that investors' perception of the 45th US President's competence is one of the biggest factors driving global markets.

The dominant narrative was that aggressive fiscal stimulus from the new administration would "pick up the baton" in goosing US (and to a lesser extent, global) growth, allowing the Federal Reserve to raise interest rates more aggressively. That agenda is now in doubt after the Republican leadership's failure to get a health care bill through even the House of Representatives last week. As we noted in last week's blog post, "if the Donald Trump, Paul Ryan and company are unable to push through reform on a subject that almost all Republicans agree upon in principle, then how in the world will they accomplish more controversial economic policy goals, including the much-vaunted $1T infrastructure bill or tax reform?"

Of course, any time you throw together complex adaptive systems like markets and politics, you get unexpected results. When it became clear that the administration's health care bill wouldn't pass late Friday, Republicans went immediately into "spin mode," suggesting that they would pivot immediately to tax reform. There are also some early reports that the President would like to pass a big infrastructure bill at the same time.

The administration's decision to focus on fiscal stimulus next, rather than waste (any more) political capital on health care reform, has kept the "Trump Trade" alive, albeit on life support. For traders who have already seen their patience tested, this may mark "put up or shut up" time for the nascent US presidency.

As of writing, there are already some cracks in the facade of the "Trump Trade." For instance, the US dollar index has already reversed all of its post-election gains to trade back below 99.00. The widely-followed indicator is now testing its 200-day moving average, and if that support level gives way, a deeper retracement becomes likely.

(Click on image to enlarge)

Source: Stockcharts.com

Meanwhile, previous market leading stock sectors like Financials and Industrials have started to see their relative outperformance fade, while defensive Health Care, Consumer Staple and Utility stocks have staged a comeback over the last two months. This intra-market price action signals that stock investors are rotating into more conservative investments, a move that's often seen before corrections in the broader market. Meanwhile, US bond yields formed a near-term peak at the Fed's meeting earlier this month, with the benchmark 10-year treasury yield falling over 20bps over the last two weeks.

Regardless of how tired of reading "Trump Trade" headlines US investors are, most would certainly prefer that the bullish gravy train keeps on rolling. Time will tell if that's the case.