‘ Trump rally’ beginning to stall out

by speculation about Trump’s promise to slash the federal tax rate for U. S. companies and to push for deregulation to boost corporate profitability.

Monday, Trump met with top CEOs at the White House, reiterating his “America First” blueprint and sending a clear message that boosting the U. S. economy is a top priority. Trump said he plans to “cut taxes massively” for corporations and the middle class and pare back business regulations “by 75% and maybe more.”

But when it comes to the stock market, which is moving into more of a “show- me” mode, Trump’s promises of things to come carries less weight now. Investors have become more skeptical as to how much of Trump’s agenda will come to fruition. Those concerns are reflected in the stalling out of the “Trump rally.” The S& P 500 has slipped roughly 1% since its Jan. 6 record close and has posted losses the past two weeks. The index was down 0.4% Monday despite Trump’s latest promises.

“The market got ahead of itself with all the Trump euphoria,” says Jerry Braakman, chief investment officer at First America Trust.

Now, Wall Street wants to see details about how big a tax cut corporations will actually get. Trump said Monday he sees the corporate tax rate, now 35%, falling to 15% to 20%, which is lower than a plan laid out by fellow Republicans. Investors want to know how big an infrastructure bill Trump can get passed and how quickly. Wall Street also wants more details on what types of changes Trump is seeking from his plans to renegotiate the North American Free Trade Agreement, or NAFTA, which Trump says has resulted in U. S. jobs fleeing to Mexico and Canada.

A big question is whether Trump’s main focus is what Wall Street perceives as his more market- friendly plans, such as lowering taxes, bolstering fiscal spending and paring back regulations on businesses while keeping consumer protections in place, says Michael Arone, chief investment strategist at State Street Global Advisors. Or the more bearish Trump policies, such as imposing border taxes on imports to the U. S., and other moves perceived as anti- free trade, such as branding China a “currency manipulator.”

“If they get tax reform, fiscal spending and repatriation of foreign profits done, it will be good for the market,” Arone says. “But if Trump ... labels China a currency manipulator, or talks about trade restrictions and tariffs that could prove problematic for the U. S. and the global economy, that would give me pause.”