How much longer can Wall Street cling on to reflation hopes?
A big part of the reflation play that engulfed markets since last November's US presidential election was that a pro-business president in the shape of US President Donald Trump would be good for stocks.
Such has been the pervasiveness of this conviction that Wall Street has been willing to forgive Mr Trump's inability over the past nine months to push through his main promise, which was healthcare reform - the excuse being that revamping healthcare is complex and bound to be difficult.
When it comes to the Budget, approval is seen as being fairly routine, so gaining congressional endorsement for large tax cuts and spending increases is not expected to pose too much of a problem - hence the reflation play.
The US market has also been willing to overlook the ever-widening investigation into Russian meddling even if this could lead to criminal charges, the constant staff upheaval in the White House and the president's bizarre tweets, many of which have been inaccurate and ill-conceived.
This willingness to brush over the administration's failings and shortcomings and eagerness to buy into the reflation theme has manifested itself in record-low volatility levels and record-high stock prices.
However, Mr Trump's pro-business reputation took a large blow last week when he resisted condemning far-right parties that were involved in racial protests in Charlottesville.
His reluctance to take a firm stand led to top corporate chiefs resigning from his business councils, prompting Mr Trump to retaliate by dissolving those councils.
Given the frequency with which controversy surrounds the White House and its volatile main occupant, you would have to wonder how much longer Wall Street can continue to cling on to its reflation hopes.
On Thursday, author Tony Schwartz, who co-wrote Mr Trump's book The Art Of The Deal, tweeted: "The circle is closing at blinding speed... Mr Trump is going to resign and declare victory before (Special Counsel Robert) Mueller and Congress leave him no choice."
Anti-Trump supporters will rejoice if this happened, but you can be sure that Wall Street will not take it lightly.
On a different reflation note, the minutes of the US Federal Reserve's July meeting, which were released last week, showed that members are concerned with inflation remaining below the Fed's 2 per cent target for a prolonged period.
Given their increased uncertainty about inflation, some participants thought the Federal Open Market Committee could afford to be patient in deciding when to hike further and wait for incoming information to confirm that the recent low readings on inflation were not likely to persist.
In response, Rabobank noted that the discussion on inflation fits with recent Fed rhetoric in which there appears to be some questioning of whether a third rate hike will be possible this year.
"Rabo's view is that a third rate hike will not materialise this year (this view being primarily based on the recent weak prints in headline and core inflation)," said the bank.
This is a contrarian view that is starting to gain a little bit of traction among others in the investment community, although it has to be said that the consensus is still that there will be a third rate hike before the end of the year, likely in December.
As for the local market, the question is whether the upbeat earnings outlook has already been factored in current prices.
This likelihood was raised by Morgan Stanley in a Singapore strategy report last week where it said it would like to see widening net interest margins for the banks before committing itself to forecasting further upside for the market.
With the Trump reflation play in doubt and waning US inflation expectations, this will be difficult.
This article appears in The Business Times today. For full listings of SGX prices, go to http://btd.sg/BTmkts