Donald Trump’s address to Congress on Tuesday is taking on the importance of a State of the Union speech when it comes to U.S. financial markets.
For investors relying on more than a year of campaign promises of a pro-growth agenda to push U.S. stocks to record highs, the dollar surging and bond yields climbing, the prime-time speech to House and Senate lawmakers couldn’t come any sooner.
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“We need to see some details within all the policy talk,” said Sean Simko, who manages $8 billion in fixed-income assets at SEI Investments Co. in Oaks, Pennsylvania. “More specifics in terms of numbers or even a more defined timeline. If there aren’t specifics there, the risk trade might be ending.”
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Though new life was given to some faltering Trump reflation trades by the president’s promise of a “phenomenal” tax plan earlier this month, investors say more is needed, especially with the administration designating the repeal and replace of Obamacare as its first priority ahead of a tax overhaul.
While it isn’t considered a State of the Union address since it falls within Trump’s first year, the initial speech to Congress has been no less important to presidents in the modern era. Barack Obama first spoke before both legislative bodies in February 2009 about the financial crisis.
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Trump will propose boosting defense spending by $54 billion in his first budget plan and offset that by an equal amount cut from the rest of the government’s discretionary budget, according to administration officials. During a speech to governors Monday, Trump called his plan a “public safety budget” and promised that “we’re going to start spending on infrastructure, big,” without giving details.
Since Trump’s election, stocks have showed few signs of slowing down. The S&P 500 has advanced 10 percent, posting 17 record closes in a rally that’s added $2.8 trillion in value to the U.S. equity market. To be sure, fundamentals are playing a part in the market’s gains. The economy has shown signs of accelerating and corporate earnings are predicted to surge 12 percent from last year, a turnaround from the profit declines in 2015 and 2016.
“It’s possible that if the market hadn’t been rising so dramatically, we could wait,” said Quincy Krosby, a market strategist at Prudential Financial Inc., which oversees about $1.3 trillion. “But this is a market that’s pretty impatient and wants results.”
Adding to the anxiety are differing views on how to proceed on tax reform. House Republicans are considering a border-adjustment tax proposal that shifts the burden from exporters to importers, arguing that it would benefit American manufacturing while providing revenue to make up for losses from reducing corporate-tax rates. Trump has called the plan “too complicated.”