President Donald Trump is set to address a joint session of Congress in a speech at 9 p.m. ET this evening.
This, for many strategists and investors, is the most important event of the week for markets.
Conventional wisdom would say, then, that the market “needs” or “wants” to hear something from the President. By this logic, a disappointing speech would be a negative for markets that have clearly pinned a number of hopes on Trump getting most — if not all — of his economic plans through Congress.
The market likes Trump and his promises
Writing in the Washington Post this week, columnist Matt O’Brien makes the case that the Wall Street rally we’ve seen since Trump’s election is merely setting up investors to end up like those who have done business with the President in the past. Which is to say, they will eventually get ripped off.
But this argument presumes that investors don’t know Trump’s economic promises are, at this point, mostly just promises. Yahoo Finance, however, has previously argued that investors want to give Trump the benefit of the doubt not only because the shareholder class has been the main beneficiary of any changes in the Trump era but because the average professional investor looks like the average Trump voter. For many in markets, Trump is their guy.
Market participants are often portrayed as being merely detached, calculating observers of corporate and economic activity. But markets also reflect the fears and hopes of their participants. And in the case of US stocks and President Trump, investors as much see a President who wants to cut taxes as they see someone who values what they do. The positive reaction, then, is emotional as much as it is analytical.
So while there is always the risk that a President’s plans for the economy disappoint markets, we have, on balance, already seen what the market’s reaction is to Trump’s stated goals. And the market likes Trump. It is unlikely that something he says in a broad-strokes speech on national TV will upset that equilibrium.
What Trump could say
“Historically, this has been the speech in which the President has showcased his policies and priorities for the coming year,” writes Deutsche Bank economist Joe LaVorgna.
LaVorgna also writes that, “Investors are looking for clues as to whether the President supports the border adjustment tax (BAT), which is a key feature of House Speaker Paul Ryan’s tax reform plan. Moreover, investors are wondering whether the President will provide any other details on his Administration’s priorities. Our best guess is that the President will not directly mention the BAT but will highlight the necessity of increasing economic growth and worker wages, both of which have lagged previous economic cycles by massive margins.”
If Trump pushes back the goalposts on tax reform, for example, this could be negative for markets. Last week, Treasury Secretary Steven Mnuchin put a target date of July 28 on getting a tax bill passed.
Repealing and replacing Obamacare, a signature Trump promise, is also likely to get a mention. On Monday, Trump said nobody knew that healthcare could be so complicated. Increased infrastructure and defense spending, meanwhile, could add to an increasingly muddied budget picture.
Lack of specifics isn’t necessarily a bad thing
If there’s one thing that has defined the early days of the Trump era, it is financial markets rising in support of Trump’s economic promises. Mnuchin said last week that it is fair to view markets as an indication of how the administration’s economic policies are going. White House officials, including the President, have also cheered rising stock prices over the last few months.
One reading of this outline for Trump’s speech leaves the President quite a bit of room to disappoint if his speech lacks specifics. But it is precisely the lack of specifics with which Trump has outlined his administration’s goals — economic and otherwise — that has been the source of enthusiasm among investors.
—
Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland
Read more from Myles here: