Mr Trump’s Speech

On February 9th, President Trump jarred the US stock market by saying he was going to make a “phenomenal” tax announcement in a few weeks.

A few weeks are up, and Mr Trump will be speaking to a joint session of Congress at around 1pm Sydney time today.

Since Mr Trump’s original announcement , the SP 500 has gained over 60 points , or close to 3.5%, largely on three key policy expectations:  tax reform, aggressive infrastructure spending and a more business-friendly approach to market regulation.

Considering the unprecedented nature of today’s speech, it’s difficult to precisely gauge the amount of time Mr Trump will spend on these economic policy initiatives and the level of detail he will provide.

It is very likely that the market will react sharply to any comments on the timing of tax reform. This includes comments about the Border Adjustment Tax (BAT); which has not been popular with retail and banking stocks.

In the lead up to today’s speech, administration officials have watered down some of the dynamics of these three  policy measures. Despite this lowering of expectations, the US stock market has still traded at elevated levels relative to earnings valuations.

On balance, we believe that Mr Trump’s speech will fall short of “phenomenal” with respect to the specific details of tax reform for US corporations and individuals. Technically, the DOW, SP 500 and the NASDAQ are all overdue for a correction.

Whether today’s speech marks the beginning of this correction depends on the degree of detail that Mr Trump provides about these three key policy measures.