What Traders Can Expect From The State Of The Union Address

By: Wayne Duggan

U.S. president Donald Trump will be responsible for one of the most important political market catalysts of the year on Tuesday night when he gives the State of the Union address in front of Congress. This year’s address has some added significance given it was postponed by a week from its original date due to the contentious government shutdown.

Here’s a look at what investors can expect from Trump and the stock market.

Trump’s Talking Points

The focus of President Trump’s speech will let investors know where his legislative priorities lie for the next two years as he tries to work with a Democratic House.

The government shutdown, which will resume if an agreement on government funding is not reached by February 15, will certainly be a key topic for Trump. On a related note, Trump will also likely address immigration reform and his proposed border wall with Mexico. Trump has insisted any funding bill would need to include border wall funding, but Democrats have repeatedly rejected such a proposal.

Key Issues for Investors

For investors, two topics that Trump may or may not address could be major market movers.

The ongoing trade war with China was the primary cause of market jitters in Q4. So far, this earning season, several major U.S. companies, including Apple, Inc. (NASDAQ: AAPL) and NVIDIA Corporation (NASDAQ: NVDA), have blamed the trade war for weak earnings and guidance cuts.

Another issue Trump could bring up is the potential for additional tax reform. Tax reform provided a major shot in the arm for stocks in late 2017 and early 2018, and Trump said prior to the midterms that he wants another round of middle-class tax cuts. Since the elections in November, he has not addressed the issue.

Trump may also discuss the economy and the Federal Reserve, the latter of which he has been highly critical of. CNBC reported Thursday that Trump is considering Herman Cain as a replacement for Fed Chair Jerome Powell. Powell’s dovish comments after last week’s FOMC meeting likely calmed some nerves, however if Trump were to so much as hint at a change, it roils the markets.

Historical Perspective

So far, Trump has a solid track record when it comes to market reactions to his two State of the Union addresses. The Dow Jones Industrial Average gained 1.46 percent on the day after Trump’s 2017 address, and it was up 0.28 percent following last year’s address.

The market has reacted much better to Trump’s speeches than it did to previous president Barack Obama. The average one-day gain following a Trump address has been +0.87 percent, whereas the average one-day Dow reaction to Obama’s eight speeches was -0.61 percent.

Here’s a full rundown of the average one-day Dow reactions to each of the past 11 U.S. presidents, according to data compiled by the Wall Street Journal.

Trump: +0.87%
Obama: -0.61%
W. Bush: +0.77%
Clinton: -0.19%
H.W. Bush: -0.32%
Reagan: -0.23%
Carter: -0.15%
Ford: +0.61%
Nixon: -0.43%
Johnson: +0.4%
Kennedy: +0.09%

Disclosure: the author holds no position in the stocks mentioned.


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