Saturday, February 25, 2017

Snoozng Thru SOTU

Most of us know the simple, guilty pleasure of falling asleep during the annual State-of-the-Union (SOTU) address by the President.  These speeches are usually bombastic partisan ranting without meaning, which make the sleeping even better.  However, the next one should be worth an extra cup of coffee at dinner.  It will be different.

Since the election last November, the bulls have been happily running down Wall Street.  The press was quick to label it "the Trump Bump," but that ignores the different legs to this rally.  The first leg following the election was a relief rally, which happens when something bad was avoided.  Just prior to the election, the market had priced in four more years of gridlock.  With gridlock gone, America can get moving again, and the stock market began pricing that in.  It was relieved!

That gridlock-relief rally stalled in January before beginning the second leg, which was the real Trump Bump.  It was at that point that analysts had restated their corporate earnings estimates, based on real reform of our tax code and a real stimulus program to rebuild our infrastructure.  But, the market is already becoming anxious as there are no details on either, as well as no sign that the Republican Congress will work with the Republican President.  More worrisome is the possibility that Trump will waste his political capital on social issues or personal grudges, like Bush II wasted his political capital like Don Quixote, on privatizing Social Security following his reelection.

If the President does not provide some clarity in the speech or at least a deadline when we will receive that clarity, I expect this second leg of this stock market rally will end quickly.  It will be same reaction if it becomes obvious that he is wasting his political capital.

Take a nap if possible before the speech, but don't miss it.