| NEW YORK
NEW YORK Feb 24 U.S. President Donald Trump's
planned economic agenda has fanned the flames for Wall Street's
record-setting run, but some investors worry that his first
major address to Congress next week risks dousing it if his
plans look slow to execute or are overly vague.
The benchmark S&P 500 has surged 10 percent since
Trump's Nov. 8 election, with optimism running high over the
Republican administration's domestic proposals, including plans
to reform taxes paid by businesses.
But there have been few specifics so far, and some investors
believe Trump may need to provide more than just generalities
when he gives his first major presidential address on Tuesday.
"If he comes out next week and there are little or no
details other than that it is going to be great, that is going
to be a time where we could have the first sort of crack in the
armor," said JJ Kinahan, chief market strategist at TD
Ameritrade in Chicago.
Trump has said enough so far to help propel major stock
indexes to all-time highs. The Dow Jones Industrial Average
this week marked its longest run of consecutive
record-high closing prices in 30 years.
With stock valuations expensive, many market participants
are bracing for a pullback. The S&P 500 is trading at nearly 18
times forward earnings estimates versus the long-term average of
15 times, according to Thomson Reuters data.
In Tuesday's speech, "the market wants to hear about
concrete tax reform plans that have traction either across the
Republican base or have the potential to reach across to
moderate Democrats," said Alan Gayle, director of asset
allocation with RidgeWorth Investments in Atlanta.
"If the market begins to doubt Trump’s ability to follow
through on his promises, then I would think that we would see a
5 percent market correction fairly easily," Gayle said.
Investors are also watching for hints about timing of
Trump's economic plans. U.S. Treasury Secretary Steven Mnuchin
on Thursday laid out an ambitious schedule to enact tax relief
"The one thing that could stall this rally would be any sort
of indication that we won’t see the bulk of the effects this
year," said Bruce McCain, chief investment strategist at Key
Private Bank in Cleveland. "I think that would take some of the
air out of the enthusiasm."
Investors will also be listening for comments about the
border adjustment tax being pushed by Congressional Republicans,
about which Trump spoke positively in a Reuters interview on
Thursday after having previously sent mixed signals.
Ahead of Trump's address, the stock options market was not
yet foreseeing a huge reaction to the speech, bracing for a move
of 0.9 percent in either direction by Wednesday's close,
according to pricing on at-the-money straddles on S&P 500 index
Investors appeared to show comfort wading into the stock
market, according to Lipper data released on Thursday, with
U.S.-based stock funds attracting $2.7 billion in the latest
weekly period, their fourth consecutive week of inflows.
However, one high-profile investor, Jeffrey Ubben of
activist investor ValueAct Capital, told Reuters on Wednesday
that his firm had been taking money out of the capital markets
as valuations have become overextended.
Beyond tax reform, investors will be eager to learn more
about Trump's plans for repealing the Affordable Care Act,
reducing regulations on businesses and increasing infrastructure
Just this week, shares of engineering and construction
companies gave up some of their post-election gains on concerns
Trump's infrastructure package would be put off until next year.
But while some investors are eager for policy specifics, the
bigger picture is the change in the White House, said Bruce
Bittles, chief investment strategist at Robert W. Baird & Co in
"This whole rally in the stock market is based on the
premise that we have moved to a pro-business administration in
Washington, D.C. from an anti-business administration," he said.
"The details, I think, are just noise."
(Additional reporting by Chuck Mikolajczak; Editing by Meredith