Tuesday, 28 February 2017
Trump words in focus, but why?
US President Donald Trump will address the US Congress on Tuesday at 21:00 GMT and YES, all market players will be following each and every single word of his speech.
Unless you have been sleeping since November 2016, you have probably noticed that US equity markets reacted very positively to Trump’s victory and inauguration and economic promises. That’s right, a lot to take in.
By taking a look only at the S&P 500, we see a 10 percent build since last year’s election. But after all, there hasn’t been any real economic measures that actually impacted markets. So… what’s the driver behind growth? A single very well-known word, speculation.
Trump’s key economic promises (tax reform, deregulation and higher fiscal spending) have been in the spotlight for quite a while. But right now, attention is placed mostly on the tax plan, as the Republican have promised to unveil it in the near term, while adding it’s going to be a “phenomenal” action for American consumers and business.
On this regard, Treasury Secretary Steven Mnuchin said in an interview last week that the new administration will try to push the tax reform in Congress before mid-year break. On Sunday, Mnuchin also anticipated that Trump will touch this issue on today’s speech. The Secretary also said that Trump could provide some extra details on the plan, of which little is known so far.
With stocks standing at record-highs due to speculation, most analysts are betting on a pullback rather soon. And Trump’s speech could be actually the trigger of it. If market players believe he is not able to keep up with the pace and fulfill his promises soon, sellers could take over and push stock indexes to the downside.
And there is one more thing. Even if he is able to send a trustful message about his tax plan, markets have already anticipated and digested it, making the announcement less of a shock.
While the tax reform will be the main focus, it’s not the only topic to be discussed. Investors will also pay attention to any comments on fiscal spending, construction, budget, deregulating certain industries, repealing the Affordable Care Act and more.