Wall Street Sees Zero Chance Trump's Budget Passes

After claims by both democrats and republicans that Trump's "skinny" budget proposal is dead on arrival, Trump's nemesis, John McCain chimed in and said that in its current form the Trump budget simply won't pass the Senate.  “It is clear that this budget proposed today cannot pass the Senate," the Armed Services Committee chairman said in a statement. The Arizona senator added that as lawmakers work on funding the government, they must come up with a deal "that provides sufficient funds to rebuild the military." Trump's budget included $603 billion for total defense spending, which includes money outside of the Pentagon, plus an extra $65 billion in overseas contingency funding that is not subject to budget caps.

However, while for most other members of Congress the funds being allocated to the military are grotesquely too much, for McCain they are not enough, and the senator argued that the baseline budget for repealing the 2018 fiscal year needs to be at least $640 billion and that lawmakers should start working on defense funding for the rest of the current fiscal year, which expires at the end of September.
"Failure to do so will only lead to more political dysfunction that has inflicted such harm on our men and women in uniform over the past six years," he said. 

The House passed a defense appropriations bill last week to fund the department through the end of the 2017 fiscal year. Any push by Republican defense hawks to increase military spending would likely hit roadblocks in the Senate, where Democrats are demanding equal increases in defense and non-defense spending. Lawmakers have until April 28 to pass legislation funding the government and avoiding a shutdown.

Yet while McCain had his own reasons to declare the Trump Budget DOA, most on Wall Street also agrees, which is why it made virtually no impact on markets - and especially defense stocks - when it was unveiled overnight. Instead, as analysts noted, the priorities outlined weren’t a surprise to anyone who paid attention during the campaign, and those proposals will likely have trouble making it through Congress unscathed, analysts said. Here are some sellside opinions:

CAPITAL ALPHA (Byron Callan)

  • "Fat chance" for the "skinny budget" as the fiscal year (Oct. 1) will likely open under a continuing resolution, with Congress wrestling over defense, non-defense discretionary spending, borrowing and taxes
  • Sees 10% odds of budget passing Congress
  • Proposal sets up "yet another" period of uncertainty for defense spending, while cuts to infrastructure spending appear at odds with administration rhetoric

COWEN (Chris Krueger)

  • Document offers even less detail than expected, with no mention of tax reform or health care repeal/replace; that means it’s back to watching the healthcare "saga" and potential April 28 government shutdown
  • Budget process will begin once those are resolved

EVERCORE (Terry Haines)

  • Trump’s budget is "a nonstarter," as Congress is likely over the next six months to approve budget/appropriations that continue pattern of spending for the past 4 years (stable, with small increases for both defense, domestic spending)
  • Investors should understand any president’s budget submission is "inherently a political document"; Congress isn’t bound to follow it

COMPASS POINT (Isaac Boltansky)

  • At this point, the document is more messaging than actual policy, but the message is important nonetheless, Boltansky says in email to Bloomberg
  • Budget signals Trump’s campaign promises - especially the America First framework - will continue governing his policy positions

HEIGHT SECURITIES (Peter Cohn)

  • Trump’s ~50-page, $1.15t budget is less than half the size of initial documents submitted by prior incoming administrations
  • Budget adds ~$54b to defense-related accounts within regular spending caps, plus another $77b for Overseas Contingency Operations (OCO)
  • Domestic program cuts exacerbated by need to pay for increases for Dept. of Homeland Security, including $2.6b for Mexico border wall, $1.5b for detention/transportation/removal of undocumented immigrants (may help private prison cos. CXW, GEO)
  • Proposal accompanied by supplemental request for $33b of defense funds
    • $13.5b for procurement, including Apache (BA), Blackhawk (LMT) helicopters, F-35 (LMT), F/A-18 (BA) fighter jets, DDG-51 destroyer (GD, HII)
    • $2.1b for R&D efforts, including missile, air defense (RTN)
  • Supplemental funds likely "a tough sell" with Democrats given non-emergency designation

Source: Bloomberg

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