The stock market rallied on Thursday as it appears the mini 3% correction is over. As I’ve mentioned, there is a large group of investors who are dying to get into the market. Whenever there is a 5% correction, they plow money into stocks. Because 5% corrections have become rare, these bullish investors preempt them by buying stocks earlier. This strategy sounds dumb on face value because it ignores the fundamentals, but it has been reinforced by a rising stock market. Even though it’s irrational, it has worked which means the fund managers using this strategy have multiplied. Being a good investor means ignoring rational arguments sometimes because it’s more important to make money than worry about being right. That’s why these mostly bearish articles I write are meant to give you perspective on the markets and aren’t about short term recommendations.

One of the reasons the stock market rallied on Thursday is because progress is being made on the legislative front. Just because the aggressive deadlines likely won’t be met and the first attempt at healthcare reform was a mess doesn’t mean nothing will get done. It’s tough to believe the GOP would squander the opportunity to show it can govern. The one uniting motivation that all politicians have is they want to get re-elected. This is what will push them to vote for a bill they don’t completely agree with. Not producing any results is indefensible because no voting faction will be satisfied with that.

The first update is on healthcare reform which is the first step towards enacting tax reform because of the budget savings it will provide. The point that healthcare reform paves the way for tax cuts has been echoed by the president, but it’s not 100% accurate. As with many aspects of legislation, the wonky procedural rules add nuances to the situation. If the Republicans pass tax reform through a budget reconciliation, they only need majority approval. However, if the tax cuts add to the deficit than the bill needs 60 votes in the Senate, meaning it needs Democrat support. The exception to this rule is that the cuts which add to the deficit can be temporary (last 10 years).