Wall Street Scrambles To Change The Trump Narrative Again

Until yesterday, the prevailing Wall Street consensus was that in the absence of specifics from President Trump on his economic and fiscal plans, the market would be disappointed, and proceed to slide. It did not, in fact quite the opposite.

As a result, the world's best paid strategists have again - just like after the election - revised the "Trump narrative" after the fact, and now the prevailing analyst sentiment is that markets will like Trump’s address to Congress as he cooled his rhetoric and likely gained political capital. As Bloomberg adds, the reflation trade, which has been boosting financials, held, even as the speech was short on details, forcing the U-turn in the plotline. Still, while turning tactically bullish overnight, there is an agreement that efforts on tax reform and infrastructure spending are likely a long, uphill slog, as those priorities may get squeezed by other agenda items, like health care.

Here is a recap of some of the most prominent notes flying around this morning, virtually none of which to Mark Cudmore chagrin, suggest - if only for now - that the "emperor is naked."

KBW (Brian Gardner)

  • Markets likely to react positively to Trump’s less confrontational, more optimistic tone; may like cooler rhetoric on trade; speech may play well among voters outside of Trump’s base, buying him some political capital
  • Possible to read speech as implicit endorsement of border adjustment tax (BAT), though will be "uphill fight" to include BAT in tax reform even with Trump’s support
  • No direct impact on financials as didn’t mention Dodd-Frank or changes to financial regulations; seemed warmer to legal immigration, which may be good for sectors that rely on immigrant labor, like homebuilders; infrastructure spending may get "squeezed out" by competing agenda items like health care, tax reform

COMPASS POINT (Isaac Boltansky)

  • Speech was positive market signal, though presidential honeymoon is "very nearly over," must be legislative progress in next 60 days to "sustain and swell" market optimism
  • Watch for health care progress by March 15; tax reform language by April 10 recess; deal avoiding April 28 govt shutdown
  • Top takeaways:
    • Trump comments "intellectually supportive" of BAT; Compass Point sees BAT as "central pillar" of tax reform effort, with far more staying power than market reflects
    • "Notable" Trump highlighted Harley-Davidson given its deep roots in Speaker Paul Ryan’s home state of Wisconsin
    • Trump’s call for $1t infrastructure spending probably won’t translate into legislative language in 2017 amid political, procedural hurdles
    • Implied support for health care tax credits is "mile marker" as House GOP hardliners worried about swapping ACA subsidies for new tax credits; turns down the heat on ideological schism
    • Didn’t address Dodd-Frank or mortgage finance reform

COWEN (Jaret Seiberg)

  • Speech serves as a reminder to bank, housing investors that White House will devote political capital in 2017 to "other fights"
  • Means regulators will need to help banks and housing; watch personnel choices over next 16 months to assess how much regulatory relief Trump team may deliver
  • No surprise Fannie, Freddie didn’t make speech as GSE reform isn’t top priority; Congress will likely drive housing finance reform; Treasury Secretary Steven Mnuchin probably won’t put Trump priorities at risk by pushing unilateral action on FNMA, FMCC; may focus on advancing infrastructure spending, limiting banking/housing efforts
  • Separately, Cowen’s Chris Krueger writes Trump offered more optimism, less detail in "sequel" to "American Carnage" inaugural; likely to receive a polling boost to ~50%+ approval; "trench-warfare" on Capitol Hill remains stalemate as clock ticks, everyone waits for "the next tweet"

FBR (Edward Mills)

  • Speech gave "strong but subtle" signals in favor of policies that divide Republicans, like BAT, infrastructure stimulus, while largely mirroring predecessors’ State of The Union addresses
  • Democrats "body language" showed it will be tough for Trump to get anything done that requires 60 votes in Senate
  • Comments on health care (including period of stability for those on ACA, tax credits for insurance) "largely positive"  for pharmaceutical industry, although Trump mentioned drug prices
    Trump Says He Wants to Speed Up FDA Approval of Medicines; Calls for ‘Stable’ Obamacare Transition, Lower Drug Prices

CREDITSIGHTS (Peter Petas)

  • "America First, details second" speech showed reflation trade is intact, with focus on tax reform, deregulation, infrastructure spending, call for Congress to act quickly
  • Lack of specifics backs those questioning execution timing, potential for protracted legislative conflicts; notes continued protectionist trade rhetoric, economic nationalism that’s periodically shaken the markets; most worrying aspect from market’s perspective may be seeming endorsement of BAT
  • Other risks: Negative growth impacts of immigration, trade, tax choices; European elections; Chinese economy; also wary of equity "correction," trend to larger, more transformative M&A deals

EVERCORE ISI (Terry Haines)

  • Speech unfolded "as advertised"; policy details due in coming weeks
  • Broad-themed remarks were aimed at political/voter audience, not markets; designed to make case to Congress, public for top priorities of jump-starting the economy, fixing ACA, improving national security
  • Investors who were looking for a clear statement of Trump priorities and resolve got what they sought; investors who wanted policy detail may be disappointed

BMO (Ian Lyngen)

  • Lack of details about tax plans, legislative priorities means address didn’t provide much support to risk or much pressure on Treasuries
  • Notes 10Y yields were within 2bps-3bps range during speech; passage means one less headline risk for Treasuries in Fed-heavy week

RBC (Michael Yee)

  • Trump’s commentary around drug pricing "unspecific and vague;" rhetoric around drug pricing "less noisy" compared to last year
  • Investors aren’t "buying" Medicare price negotiations as realistic outcome; generalist investors may return to biotech through 2017
  • Presence of Amicus Therapeutics CEO, daughter and Trump comments around need to "slash restraints" at FDA and elsewhere may help FOLD, and bode well for agency decision on BioMarin’s experimental therapy for Batten’s disease

MORGAN STANLEY (Brian Essex)

  • Address left BAT option on the table, which may be a risk for IT services sector
  • See earlier story: IBM, CSC Best Positioned in IT on Trump Speech

Source: Bloomberg