State of the Union: Stock Investors Looking for Trump to Address Trade Deal, Pharmaceuticals, Infrastructure

If Trump talks about optimistically about a U.S.-China trade deal, for example, shares of Caterpillar and Apple could rise. Other topics include infrastructure spending and lower pharmaceutical prices, which could have an impact on materials and engineering firms as well as drug companies.
James Hyerczyk
President Trump

The major U.S. equity indexes closed higher on Tuesday, boosted by optimism ahead of President Donald Trump’s State of the Union address. Volume and volatility were below average primarily due to absence of major Asian traders because of the Lunar New Year holiday. Nonetheless, investors still responded positively, for the most part, to solid earnings reports.

In the cash market, the benchmark S&P 500 Index settled at 2737.70, up 12.83 or +0.49%. The blue chip Dow Jones Industrial Average finished at 25411.52, up 172.15 or +0.70% and the tech-based NASDAQ Composite closed at 7402.88, up 54.54 or +0.78%.

Investors Await State of Union Address

President Trump will deliver his highly anticipated State of the Union address at 02:00 GMT. The speech is “highly anticipated” because it was delayed more than a week because of the longest government shutdown in U.S. history.

The slate is open to a variety of topics which could influence individual stocks across several sectors. If Trump talks about optimistically about a U.S.-China trade deal, for example, shares of Caterpillar and Apple could rise. Other topics include infrastructure spending and lower pharmaceutical prices, which could have an impact on materials and engineering firms as well as drug companies.

Trump could also offer an olive branch to the Democrats by proposing a bipartisan approach to settling the conflict over the construction of a U.S.-Mexico border wall. Trump could even swing the other way by threatening to build the wall on the grounds of a national emergency.

Earnings Continue to Generate Mixed Reactions Although Generally Bullish

Alphabet, Seagate Technology and Estee Lauder reported better-than-expected earnings, but the response was mixed with Alphabet closing up 0.9 percent, and Seagate dropping 0.9 percent.

Estee Lauder shares rose 11.6 percent on better-than-expected earnings, while shares of Archer-Daniels Midland fell 5.9 percent in response to weaker earnings and revenue.

According to The Earnings Scout, nearly half of S&P 500 companies had reported earnings through Tuesday morning, with about 70 percent of those companies topping analyst expectations.

Outlook for 1Q 2019 Looking Weaker

The Earnings Scout assessment has to be taken in stride, however, because further analysis shows “beat rates are running below last quarter as the overall year-over-year rates of sales and earnings growth has decelerated,” said Nick Raich, CEO of The Earnings Scout, in a note to clients.

“More importantly, 1Q 2019 through 3Q 2019 S&P 500 EPS growth expectations continue to go lower with some providers already showing negative growth.”

Furthermore, FactSet data show that corporate earnings for the first quarter are expected to decline by 0.8 percent.

Raich countered the FactSet data by saying he expects earnings to continue growing in the first half of 2019, blaming the negative estimates on “low-balled estimates.”

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