Believe it or not, we actually try to keep our political discussions here at Zacks.com to a minimum. Who someone votes for is ultimately none of our concern; we are interested in the pursuit of making money in the stock market through Zacks methodologies and keeping our eyes open to the world around us, especially toward that which directly affects the companies we have bought or are interested in buying.
That said, however, sometimes a political figure comes along who makes it impossible to separate politics from economic forecasts. And in this regard, President Trump’s speech last night hit on a couple pieces of his agenda that, if put in play, will affect everyone’s portfolios, regardless of preferred investment method. A campaign-style rally in Phoenix, AZ saw Trump threaten to shut down the government if the wall he wants to build on the Mexican border is not part of Congress’ budget. “If we have to close down our government, we’re building that wall,” said the President, to cheers from his voter base.
Now, to be sure, a giant wall paid for by the government’s infrastructure stipend would be a boon for construction materials companies — like Zacks Rank #1 (Strong Buy)-rated Potlatch Corporation (NASDAQ:PCH) and Zacks Rank #2 (Buy)-rated US Concrete Inc (NASDAQ:USCR) as well as construction machinery firms like Caterpillar Inc. (NYSE:CAT), which is also a Zacks Rank #1 — but costs for said wall have always been murky ($1.6 billion is what Trump is asking for now, but this is an extremely fungible number), and its effectiveness in keeping out “undesirable” immigrants from Mexico has always been in question. So a blank check for a massive project without a clear understanding of how well it would work — this is something Congress is going to get behind? (Not that it hasn’t for other things in the past, of course.)
Also, Trump said last night he will “probably” terminate NAFTA at some point, the major trade deal passed during the Clinton administration that dictates trade policies for the U.S., Canada and Mexico. This is consistent with Trump’s other stances regarding free-trade agreements that he doesn’t like, such as the Trans-Pacific Partnership (TPP) and trade pacts with China. For all NAFTA’s faults, simply tearing up the agreement would create big questions for the U.S. stock market, and we know how markets react when faced with big questions.
And actually, had the President’s track record on big changes to U.S. policy — from healthcare reform to Middle Eastern immigration — been at all successful to this point in his short tenure in the White House, these promises he made last night might actually rally markets. After all, there are plenty of improvements that could be made to any of these objectives, done correctly. But faith in Trump’s ability to deliver the goods has eroded greatly in just the past 8 months.
Futures are down slightly in today’s pre-market, but we do not detect any hysteria regarding anything Trump said at last night’s rally. We’re also following the best trading day in the month of August yesterday, which put the month back in the green (temporarily). Volume is down seasonally, and earnings season is in its final throes. Likely market participants are filing this speech away into their memory banks for future reference, but as of now, no one is treating Trump’s promises/threats very seriously.