Rocketing up 303 points, the Dow Jones Industrials reached another record high of 21,115 or 1.46%, dragging the tech-rich Nasdaq up 71 points or 1.25% to all-time high of 5,904 and pushing the S&P 500 up 32 points to 2,395 or 1.36% to new heights. Since President Donald Trump beat Hillary Rodham Clinton Nov. 8, 2016, the Dow jumped over 3,000 points, Nasdaq over 800 points and S&P 500 almost 300 points, suggesting the markets had great expectations of Trump’s economic plans. Delivering a bell-ringing State-of-the-Union-like speech last night, Trump mesmerized a joint session of Congress with a speech so controlled, so methodically delivered, so presidential that he set the record straight of who’s the president of the United States. Since Trump took office Jan. 20, 2017, disgruntled Hillary-backers have done nothing but protest the election’s outcome.
Last night’s speech put to rest any lingering doubts about Trump’s capacity to take charge of the presidency. Whether Democrats or so-called progressives liked his speech, they saw Trump take charge of the presidency, showing the same oratorical flair as former President Barack Obama but with a confidence only available to a mature 70-year-old at the top of his game. Reminiscent of President Ronald Reagan, Trump told a joint session of Congress that no problem is too big if Democrats and Republicans pledge to work together for the American people. Wall Street evidently liked the message, especially Trump’s plans to renegotiate bad trade deals, return high paying jobs to the U.S. and once again renew a pledge for American exceptionalism. Last nights speech went beyond campaign rhetoric, telling a joint session of Congress how the mighty U.S. economy was poised for new heights.
Wall Street likes optimism, especially from a business-friendly president promising to end punitive regulations, lower taxes and unleash the creative genius of American entrepreneurs. Asking Congress to approve $1 trillion in infrastructure spending over the next 10 years, Trump drew rare applause from Democrats. Faced with growing budget deficits that could exceed $1 trillion in 2017, it’s doubtful a fiscally conservative House will cough up $100 billions dollars a year. Wall Street used Trump’s speech to go into bubble mode, deciding it’s better make hay before the correction. Wall Street analysts admitted there was nothing specific in Trump’s speech that warranted today’s buying frenzy. Writing the New Yorker this week, James Suroweicki said “this could be setting up for a disappointment,” meaning, the recent market rally could easily morph into a sell-off.
When you consider that Trump faces a debt-ceiling crisis March 15, today’s Wall Street euphoria could end badly, especially if the Obamacare repeal and expected across–the-board budget cuts go badly. Trump’s promises to tariff U.S. or foreign companies that move manufacturing overseas could start a trade war that disrupts current arrangements under the Jan. 1, 1994 North American Free Trade Agreement. “What markets are not taking seriously is the possibility that Trump may be willing to do things—like start a trade war with China or a real war with Iran—whose outcomes would be uncertain,” said Surowiecki. While it’s tempting to attribute Wall Street’s 10% run-up after Trump’s election to changing market conditions, it’s more likely a garden-variety bubble likely to end with a massive sell-off. Financial writers often scratch their heads trying figure out Wall Street.
Trump faces some big hurdles getting his whopping business and individual tax cuts approved, when you consider he’s asking for $54 billion or 10% increase in defense spending. Beefing up the military, spending a trillion on infrastructure and somehow expecting to balance the federal budget makes no sense. To accomplish Trump’s plans, he’d have to slash the budget across-the-board of practically every federal program to get the cash needed for the Pentagon and infrastructure projects. Senate Majority Leader Mitch McConnell (R-Ky.) already said the Trump’s ambitions budget, promising to slash the State Department budget by 30%, was dead-on-arrival. State of the Union-type speeches don’t change anything on Wall Street, only signal to traders that it’s time to buy or sell. Last night’s speech told traders it’s time to buy before the sell-off starts, something unrelated to Trump’s speech.
Wall Street likes to use any excuse to buy or sell, last night using Trump’s speech to make a case for frenzied buying. When you consider the market’s over-valuation, there’s nothing but known-unknowns in Trump’s speech, especially how newly minted Treasury Secretary Steve Mnuchin is supposed to deal with expanding federal budget deficits, paying in 2017 for Obamacare subsidies. Without some plan to pay for trillion dollar infrastructure projects or whopping defense budget hikes, it’s unrealistic for the White House to talk about exploding revenue from new jobs. Wall Street turns on a dime, whether it’s a speech or real economic metrics. All indications from the Federal Reserve show that U.S. Gross Domestic Product growth continues at a sluggish pace. If the economy hits a glitch, as many economists predict, Wall Street hits the sell button, quickly turning to doom-and-gloom.
