Having extensively previewed the various known and unknown aspects of Trump’s tax plan yesterday, set to be announced shortly, the reality – at least according to Bloomberg’s Mark Cudmore – is that no matter what Trump says today, it will almost certainly lead to more stock buying, leading to yet another “Trump Bump.” Which is ironic for one main reason: “Trump’s tax plan is expected to promise great things, but it’ll mean little without approval from Congress. So the consensus is that it’s unlikely to impact too much either way beyond some short-term volatility.” Furthermore, and counterintuitively, it would be a “positive surprise if the plan isn’t overly ambitious and doesn’t promise too much. That would make fiscal stimulus suddenly seem more achievable and realistic.”
However, Cudmore says that is an unlikely outcome: “One of the few inarguable facets of Trump is he knows how to get attention and viewers. Trump’s tax proposal is likely to be dramatic with some bold statements.”
There is one possibility Trump “disappoints” markets:
“A negative surprise would come from Trump straying off script and raising the prospect of trade wars again. Given his threats regarding Canadian dairy products and Wilbur Ross’s comments about further tariff actions on other products, this is a distinct possibility.”
And yet, the base case is that “Trump will provide little fundamental change. And the odds for a surprise skew negative. Yet markets have a tendency to focus on the news that matches their mood and suits the preferred narrative. Hard facts aren’t always malleable, but a legislative wishlist — through the miracle of selective sampling — can be bent to one’s purpose more easily.”
The bottom line: traders will goalseek Trump’s statement to justify a move higher, as “the prevailing sentiment suggests U.S. stocks will achieve record highs within days. It’ll just be a matter of how long it takes to work out which part of Trump’s proposal will justify that move after the fact.”
His full note below:
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Macro View: Eager U.S. Equity Investors Will Ensure a Trump Bump
Investors are looking for a reason to buy U.S. equities again, which means they’ll probably find one in Donald Trump’s tax plan no matter what he says on Wednesday.
With multiple geopolitical risks successfully navigated during the past couple of months, investors are long cash and seeing a market rally sharply, backed by strong earnings.
Psychologically, it’s difficult to admit to being underexposed to the global bullishness and to have to enter fresh market longs within 1% of the record high. Traders will cast around for something on which to pin their sudden change of heart, even if it’s tenuous.
Trump’s tax plan is expected to promise great things, but it’ll mean little without approval from Congress. So the consensus is that it’s unlikely to impact too much either way beyond some short-term volatility.
Counterintuitively, it will be a positive surprise if the plan isn’t overly ambitious and doesn’t promise too much. That would make fiscal stimulus suddenly seem more achievable and realistic.
I wouldn’t recommend raising your hopes for that outcome. One of the few inarguable facets of Trump is he knows how to get attention and viewers. Trump’s tax proposal is likely to be dramatic with some bold statements.
A negative surprise would come from Trump straying off script and raising the prospect of trade wars again. Given his threats regarding Canadian dairy products and Wilbur Ross’s comments about further tariff actions on other products, this is a distinct possibility.
So the base case is that Trump will provide little fundamental change. And the odds for a surprise skew negative. Yet markets have a tendency to focus on the news that matches their mood and suits the preferred narrative. Hard facts aren’t always malleable, but a legislative wishlist — through the miracle of selective sampling — can be bent to one’s purpose more easily.
The prevailing sentiment suggests U.S. stocks will achieve record highs within days. It’ll just be a matter of how long it takes to work out which part of Trump’s proposal will justify that move after the fact.
via http://ift.tt/2oLkQEH Tyler Durden