This Week, Market’s Focus on President Trump Message to Congress
$SPY, $GLD, $USD
Tuesday evening, 28 February, US President Donald Trump is slated to give a major address to a joint session of Congress in lieu of the usual State of the Union address.
This 1st official congressional address by our President may be pivotal for world financial markets, especially since he has promised an announcement regarding his tax reform plan.
Compared to his Inauguration speech, this address to Congress will focus on his list what he wants done in his 1st few years in office.
We can expect the speech to lay out 4 Key policy areas that include the following:
- tax reform
- border security
- healthcare and
- fiscal spending/ infrastructure plans.
Note: I expect him talk about scrapping Dodd-Frank, and the Volcker Rule for US banks and rolling back on the current regime of financial market regulation.
Stocks markets have been on a strong drive North since 9 November as anticipation builds around President Trump’s promises of lower corporate taxes, decreased regulations, and increased fiscal spending.
Tax reform, in particular, has been one of the Key drivers of The Trump Rally, as Bullish investors have become further emboldened by the prospect of accelerated company earnings improvements through potentially dramatic corporate tax cuts.
The month has seen an atypical combination of market moves that has included sharp surges for both stock markets and safe-haven Gold prices, while the USD has remained stable in the frame. This suggests that while strong economic optimism continues to hold investor sentiment, there are many uncertainties on the horizon that have prompted heightened caution, especially since stock prices have been hitting new record highs on a daily basis.
Among the most notable of these uncertainties are political conditions in Europe, with the UK preparing to trigger Article 50 in March to separate from the EU (Brexit), and upcoming French elections threatening to put in office a far-right, anti-EU populist in Marine Le Pen.
But, the primary source of uncertainty continues to be the Trump Administration and its execution of economic policy promises.
Again, tops among his promises in the eyes of the financial markets is currently that of tax reform.
Donald Trump originally promised on the campaign trail last year to cut corporate taxes down to 15%, and has recently talked about unveiling a phenomenal tax plan within weeks, expectedly during or around his address to Congress Tuesday evening.
Meanwhile, US Treasury Secretary, Steven Mnuchin, said last week that he is looking to get a comprehensive tax reform plan passed by August.
Aside from the potential challenges in getting a tax reform plan agreed upon, President Trump has stated that the implementation of a new tax plan would need to come after the repeal and replacement of Barack Obama Care, aka the Affordable Care Act (ACA). Given the political and economic difficulties that are being encountered in resolving this critical healthcare issue, it may be some time before the focus of both the Administration and Congress is turned to tax reform., and maybe not.
The Big Q: Where does all of this leave the financial markets?
The Big A: So far, stock investors have exhibited patience in their optimism for President Trump’s plans.
Notably, over the past several weeks, most intra-day dips in stocks have been bought-up, pushing the major indexes to higher highs.
Pundits are asking, how long could this patient optimism last?
A major test may come Tuesday night, as President Trump either delivers on his tax plan announcement and other fiscal topics, or does not. A failure to follow-through might try the patience of the overbought stock markets, which could lead to a pullback stocks, further gainers in Gold, and pressure on the USD.
The market reaction President Trump’s address will be a Key gauge of confidence in The Trump Administration.
If the President delivers a textbook Trump speech that avoids controversy and aims to build cohesion with Congress then the stock market rally is likely to extend.
Have a terrific week.