COOPERMAN'S OMEGA: 'There is a sizable risk' to the stock market

The Trump administration's failure to overturn Obamacare poses a big risk to investors, according to hedge fund Omega Advisors.

The failure to pass the American Health Care Act first time around puts the administration's ability to pass corporate tax reform in doubt, Omega founder Lee Cooperman and vice chairman Steve Einhorn wrote in a letter last week to investors.

That represents a risk, as strategists have assumed in their S&P 500 earnings models, Cooperman and Einhorn said.

Here's the relevant bit from Omega's 56-page note, a copy of which was reviewed by Business Insider:

"With the failure of the White House and Republican Congress to repeal and place the ACA, there is a risk that President Trump and Republicans will be unable to deliver the economic agenda promised - a lower corporate tax rate, repatriation of foreign earnings at a low (10%) tax rate, added spending on infrastructure, and reduced regulation of the private sector ... More broadly, there is a tail risk to markets that the ideological split in the Republican party denies their ability to effectively govern and deliver on their economic agenda. This tail risk is further lifted by the complete absence of any cooperation between Democrats and Republicans.

"Many of the S&P 500 earnings estimates from strategists for 2018 reflect an incremental $8 to $10 from a lower effective corporate tax rate and added share repurchase from repatriated earnings. Without question, there is sizable risk to estimates of S&P 500 earnings if the Trump/Republican Congress economic agenda is not delivered."

Cooperman and Einhorn also wrote in the letter that they expected the equity market to slow down.

New York-based Omega was up 6.5% in the first quarter, according to the letter. The returns before and after fees were listed as the same.

Last year, the Securities and Exchange Commission charged Omega and Cooperman with insider trading. Cooperman has said he is innocent and that he will fight the charges.

The case has hurt the fund, as some investors have pulled their money. Reuters reported that the fund managed $3.5 billion at the end of January, down from $5.4 billion when the SEC sued in September.