Close eyes on Trump’s speech

Wall Street wants de­tails about tax, in­fra­struc­ture plans

USA TODAY US Edition - - MONEY - @adamshell USA TO­DAY Adam Shell

On eco­nomic mat­ters, it’s show-me time for Pres­i­dent Trump.

The “Trump rally,” which has been pow­ered by the pres­i­dent’s prom­ises to jump-start U.S. eco­nomic growth, has pro­duced $2.9 tril­lion in pa­per gains for the do­mes­tic stock mar­ket since Elec­tion Day, ac­cord­ing to Wil­shire As­so­ciates. That’s a siz­able sum that ups the ante for Trump’s key speech to Congress on Tues­day night.

While it’s not an of­fi­cial State of the Union ad­dress, it is be­ing billed by Wall Street as the most im­por­tant speech — at least for mar­kets — since Trump took of­fice.

Wall Street is hun­gry for de­tails about pro­pos­als to trim Cor­po­rate Amer­ica’s tax bill, his thoughts on taxes re­lated to trade as well as plans to boost growth by spend­ing U.S. money to hire Amer­i­cans to fix the na­tion’s roads, bridges and other in­fra­struc­ture.

While in­vestors have been will­ing to wait for specifics from the pres­i­dent, they are be­gin­ning to get im­pa­tient. In­vestor angst is ris­ing, given the sharp rise in stocks prices the past three months and the Dow Jones industrial av­er­age’s run of 12 record clos­ing highs in a row (its long­est run of all-time highs since it notched 13 in Jan­uary 1987) — built partly on hopes for Trump to de­liver — that have pushed the broad U.S. stock mar­ket fur­ther into over­val­ued ter­ri­tory.

If the pres­i­dent dis­ap­points Wall Street by get­ting off mes­sage or by putting key progrowth plans such as tax cuts on the back burner, the stock rally could fal­ter.

“The next cou­ple of days will prove a ver­i­ta­ble land­mine for in­vestors,” Ar­naud Mas­set, an an­a­lyst at Swis­squote Bank, warned in his daily mar­ket note. “On one hand, the mar­ket’s ex­pec­ta­tions are very high;

how­ever also high is the prob­a­bil­ity that Trump will strongly dis­ap­point.”

Here are key things money man­agers will be watch­ing:

Tax talk. Will the pres­i­dent de­liver on his call for a “phe­nom­e­nal” re­form pack­age? Wall Street will also look to see if Trump gets be­hind the House Repub­li­can plan to tax Amer­i­can com­pa­nies that im­port goods back to the U.S. but ex­empt ex­ports — a so-called bor­der ad­just­ment tax, or BAT. The pres­i­dent has crit­i­cized BAT — which is de­signed to make it less prof­itable for U.S. com­pa­nies to make things out­side the U.S. or move their oper­a­tions abroad — as be­ing “too com­pli­cated.” Is cor­po­rate tax re­form, viewed as a pil­lar of Wall Street’s bullish stock mar­ket the­sis, still a top pri­or­ity? Is Trump still push­ing to cut the cor­po­rate tax rate, now roughly 35%, to 15% or 20% as the House speaker, Paul Ryan, fa­vors

“Wall Street is still await­ing a tax plan,” says Michael Baele, port­fo­lio man­ager at U.S. Bank Wealth Man­age­ment. “Is it high on Trump’s to-do list? Is it some­thing that there is a lot of will for? What is the tim­ing ” of any changes?

Reg­u­la­tion roadmap. Wall Street wants more de­tails about Trump’s plans to dereg­u­late busi­nesses, es­pe­cially in the bank­ing and en­ergy in­dus­tries, two key driv­ers of U.S. eco­nomic growth. “In­vestors would like some more in­for­ma­tion,” Baele says.

Pre­scrip­tion for health care. What’s the plan for the “re­peal and re­place­ment of Oba­macare?” Dana Peter­son of Cit­i­group won­dered in a client note. Is there a quick so­lu­tion, or will such a large un­der­tak­ing take time?

With the stock mar­ket pricey, Wall Street needs to hear Trump say his plans are still on track.

“For stocks to grind higher, in­vestors need to be re­as­sured that the pri­mary rea­son Trump has been so em­phat­i­cally em­braced — namely his pro-busi­ness, progrowth stance — is still at the core of his eco­nomic agenda,” says Quincy Krosby, mar­ket strate­gist at Pru­den­tial Fi­nan­cial.

If the mar­ket doesn’t like what it hears from the pres­i­dent and stocks turn lower, the true test of the Trump rally’s stay­ing power will be “whether or not buy­ers come in and buy the dip” or load up on stocks at lower prices, Krosby says.

POOL, GETTY IMAGES

Pres­i­dent Trump

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