Close eyes on Trump’s speech
Wall Street wants details about tax, infrastructure plans
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.