State of the Union addresses aren’t typically big market-moving events, but comments President Obama made on the fiscal cliff and energy independence could have at least some short-term effects on sectors ranging from consumer discretionary stocks to clean energy.
As keen as everyone is on what the president had to say about issues ranging from the budget deficit to gun control to ending tax breaks for companies that send jobs overseas, markets have historically met the annual State of the Union speech with a shrug.
Indeed, going back to 1934, most State of the Union addresses are followed the next day with less than a 1% stock market move, with an average change of just 0.15%, says Jeffrey Kleintop, chief market strategist at LPL Financial, in a note to clients.
So, if stocks do do anything dramatic Wednesday, it’s more likely a reaction to more important — and concrete — events, like the retail sales report, bellwether corporate earnings, import prices and, perhaps, a speech from the president of the St. Louis Fed.
That said, some sectors could pull back on comments the president made about ending tax breaks, hiking taxes and raising the minimum wage — which might just provide some buying opportunities.
“Fiscal cliff-related comments hold potential consequences for defense, consumer discretionary, and high dividend-paying stocks,” Kleintop notes.
Proposals for ending tax breaks for companies that send jobs overseas, implementing an “offshoring tax” to set a minimum tax on overseas earnings, raising the minimum wage to $9 an hour and higher taxes for the rich could cause some price action in everything from consumer discretionary stocks to municipals bonds to high-dividend stocks.
That could set up a chance to accumulate positions in a number of exchange-traded funds. Watch the SPDR Consumer Discretionary ETF (NYSE:XLY), the iShares National AMT-Free Muni Bond ETF (NYSE:MUB) and the SPDR S&P Dividend ETF (NYSE:SDY) for opportunities to buy on a dip.
But at least one sector could be setting you up: “Comments on energy independence could lead to a bounce in clean energy stocks that soon fades,” Kleintop writes.
Of course, that can be said of just about any market reaction coming out of a State of the Union address.
Yes, the president again touted the need for greater infrastructure investment. That’s a potential positive for some stocks in the industrial and materials sectors, Kleintop says, were it to actually take place.
“Another example is a new program to modify underwater mortgages that could act as a negative for mortgage-backed securities, if implemented,” the strategist writes.
What the president wants — and what Congress will give him — are two very different things. Any knee-jerk reaction in the market or its subsectors might provide a chance to get better prices in say, muni bonds, but mostly it’s just noise.
After all, what the president wants and what congress will give him are two very different things.
As of this writing, Dan Burrows did not hold positions in any of the aforementioned securities.