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What Wall Street Is Watching for in Trump’s SOTU Address

What Wall Street Is Watching for in Trump’s SOTU Address

President Donald Trump is giving his one-week delayed State of the Union address today, and Wall Street is paying close attention.

One of the big topics of interest is taxes, as the vast majority of Americans want taxes raised on the rich, and many feel like the Tax Cuts and Jobs Act passed by the GOP in 2017 mostly benefited top-tier earners.

Per Bloomberg:

On Monday, Politico said surveys show “overwhelming support for raising taxes on top earners,” with one new poll finding “76 percent of registered voters believe the wealthiest Americans should pay more in taxes,” while a recent Fox News survey found that “70 percent of Americans favor raising taxes on those earning over $10 million — including 54 percent of Republicans.”

Tump needs to boast about the economy, Valliere said, but is instead likely to get “bogged down” on border wall funding and trade wars and tariffs, “making business leaders reluctant to commit to new investments.” The president also needs to “expand his base and cut some deals. He’s a salesman who begins his final campaign tonight after a battering in January that raised the likelihood that Trump – unlike Reagan – could be a one-term president.”

Also at the top of the list for investors: trade.

Separately, Raymond James policy analyst Ed Mills wrote he’ll be watching whether Trump takes “the more traditional path of outlining an agenda that attempts unity or if he will stick to themes that will rally his political base and foreshadow continued clashes,” with a focus on any hints about trade negotiations with China, a resolution for government funding/border security, drug pricing and any infrastructure plan.

Mills joined other analysts who’re expecting clues on trade policy will be top of mind for stock investors watching the State of the Union speech. The consensus is that trade remarks may influence equity sectors from footwear to auto parts, while pharma stocks may be volatile if the president zeros in on drug costs reforms, and financials and housing may be overlooked.

CNBC says Wall Street also is looking for clues on how the administration will curb drug prices.

On Thursday, the administration unveiled a proposal that would ban so-called backdoor deals cut by pharmaceutical companies with middlemen who get preferred status for their drugs through Medicare.

As it stands right now, drug makers pay rebates to pharmacy benefit management (PBM) companies like CVS Health and UnitedHealthGroup to include their medications on Medicare Part D plans. This proposal would pass an estimated $29 billion in rebates from drug companies to consumers. PBMs would get a flat fee for including drugs on their plans instead.

Shares of CVS HealthUnitedHealth and Cigna all fell on the news last week.

“If implemented in its current form, the proposed rule could have sweeping changes to the drug channel,” said Mills of Raymond James. “This is only a proposed regulation and still must go through a comment period before finalization. If all goes according to the HHS schedule, the new regulation will be fully implemented by January 1, 2020.”

Infrastructure also should be a prominent topic.

CNBC learned in January that the White House held a high-level meeting to plot out a possible path forward for a “significant” infrastructure initiative. However, it is not clear whether the administration will move forward with its own plan or work with Democrats on the matter. Trump said after the midterms in November he hoped to work with Democrats on infrastructure, adding: “We have a lot of things in common on infrastructure.”

Dan Clifton, head of policy research at Strategas, said Trump will likely push for an infrastructure bill at the State of the Union. He added, however, that the two sides are unlikely to come to agreement on a big infrastructure measure. Nonetheless, some stocks could move on the Trump comments.

Stocks that could benefit from such measures include Vulcan MaterialsJacobs Engineering and Fluor Corporation.

Of course, talk of his long-promised border wall could throw cold water on a potentially bullish speech, CNBC says.

While Trump could strike a bipartisan tone on trade, drug pricing and infrastructure — which would be bullish for the broader stock market — his message could be undercut by the lingering stalemate between the administration and Democratic leadership over funding for the U.S.-Mexico border wall.

Isaac Boltansky, director of policy research at Compass Point, said Trump will likely dedicate a good chunk of his speech to his wall proposal. “We believe there will be an outsized focus on the border wall and the president could use this forum to build his case for unilateral administrative action on the wall (e.g., national emergency declaration),” Boltansky wrote in a note.