SOTU Spectacular — Anything to see here? (Feb. 28)

April 2, 2024 | Miscellaneous, Update | By

Update 166: SOTU Spectacular — Anything to see here? 

Tonight at 9 pm ET, Millions will be drawn to the TV as Donald Trump makes his first presidential address to Congress.  The anticipation reflects the ongoing and increasing uncertainty about the administration’s policy, which has been eccentric, fluid, and vague on issues of  national concern like job creation and the debt to an almost unnerving degree. 

We took a look yesterday at the record-breaking Wall Street rally as a proxy for public sentiment regarding the administration.  Policy expectations have created trillions of dollars of market value in three months.  Think of this SOTU as a quarterly report to investors by the CEO.

Today, we offer a way to stay interested in President Trump’s Joint Address tonight even if you don’t consider yourself an investor. 

Best,
Dana

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The uncertainty surrounding the Trump administration’s policy specifics are back of mind for many watching tonight.  If the president wants to preserve precious goodwill among his supporters and big business across the U.S., then he should address all the unanswered questions lingering over policy.  If, however, Trump opts to leave uncertainty in the air, then expect the stock market rally to end.

Market Perspective and Consequences 

The Dow and Nasdaq are up 13 percent since Trump’s win. The S&P is up 10 percent, but markets are also flashing warnings that investors may have raced ahead too fast.

The S&P now trades at around 27 times earnings, above its long-term average of around 16.  Additionally, It trades at 17.6 times expected earnings, the highest level since June 2004. The S&P is now 9 percent higher than its 200-day average, often a signal that a correction is ahead. 

Traders and market analysts say investors are now treating stock prices like a cut in the corporate tax rate to 20 percent or lower this year is all but guaranteed.
For now the unshakable view around Wall Street trading floors is that Trump will deliver tax cuts and unshackle corporate America from regulation and nothing else  matters. 

Per Steve Massocca of Wedbush Equity Management, “next year, there are 13 Democratic senators up for reelection in reddish states. If you get eight wins by the Republicans, and now we have a filibuster proof majority in the Senate, then the market could double.”

Tonight is a valuable, if not indispensable, opportunity for the president to outline his vision for the next four years and direct his support behind specific legislation.

What Trump Won’t Tell You

Or can’t.  The president is set to talk about issues ranging from healthcare to infrastructure, but there is a lot that he will leave out, partly because the policy is too rudimentary or Trump doesn’t yet have a position at all.

Here are a few things President Trump will not speak about tonight:

•  ACA

Repeal and replace Obamacare has been the rallying cry in Republican offices since election day last year, but over three months later, we have yet to hear about their replacement plan.  Speaker Ryan has sketched out a rough blueprint, but so far we’ve mainly just heard about the components of the ACA that they will keep, like coverage for pre-existing conditions and so forth.  News on this front from Trump tonight would dominate several cycles.

•  Infrastructure

Time and time again, the president has said he is going to be the “best jobs president” this country has ever seen. His plan for earning that title is a massive infrastructure plan, which could potentially draw bipartisan support and significantly stimulate the economy. Trump has left a lot of questions unanswered here too.

The administration has suggested that the trillion dollar infrastructure bill will be paid for by investors, who will be incentivized to pour money into our infrastructure through huge tax credits. But these tax credits are seen by many Democrats as massive government handouts to large corporations. In other words, the companies will receive subsidies for projects that they were likely going to invest in anyway.

What you won’t hear tonight is how the president aims to make up for these massive tax cuts or that these companies will be getting handouts at the taxpayer’s expense.

•  Dodd-Frank

Trump has said that he will do away with most of Dodd-Frank, but we have yet to see concrete plans on how he will dismantle the financial regulations set in place after the Great Recession. His administration has outlined several regulations that it would like to cut back, but has not offered any detail on how these will keep Wall Street from engaging in risky behavior or how retirees won’t be taken advantage of after they repeal the fiduciary rule, for example. That won’t change tonight.

Trump can fritter away his political capital, and lose the support of the capital markets — that’s his fan section; his national approval rating is south of 40 — and the repercussions could be more than political if he doesn’t clarify his legislative goals and strategy soon.

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