While the benchmark S&P 500 index is off to an auspicious start — gaining about 7% since the January opener — the buck may stop with tonight’s State of the Union address. At 9:00 p.m. Eastern, President Joe Biden will speak to a divided and confused nation. While the equities sector may be posting numbers in green ink, poor earnings and mass layoffs betray investor confidence. As well, geopolitical flashpoints don’t favor the Biden administration.
Predominantly, most Americans will look to the president for guidance on the consumer economy. With the combination of historically high inflation subsequently meeting rising interest rates, consumer sentiment predictably fell into the dumps. Without cogent guidance on where the economy might be heading, many families sit in limbo regarding significant life decisions.
Still, it’s the long-term implications behind the messaging and not the State of the Union address itself that matters. CNN Business recently stated that stocks “saw gains three out of four times after former President Donald Trump addressed Congress, but overall it’s a fairly mixed bag.”
“The S&P 500 fell by a median of 0.5% the day after President Barack Obama’s SOTU addresses, and gained a median 0.7% after former President George W. Bush’s speeches, according to Bespoke Investment Group.”
Either way, President Biden can either soothe concerns or ratchet up anxieties. Below are four things investors should watch during the State of the Union address.
What’s Going on With the Economy?
Easily one of the most difficult challenges for President Biden to navigate centers on the economy. Further, mixed messaging won’t help the leader of the free world. During the December Federal Open Market Committee (FOMC) meeting, Federal Reserve chair Jerome Powell stated, “I don’t think anyone knows whether we’re going to have a recession or not.”
However, on a recent appearance on Good Morning America, Treasury Secretary Janet Yellen declared, “You don’t have a recession when you have 500,000 jobs and the lowest unemployment rate in 50 years.”
So, recession or no recession? That is the question. Investors will be looking for Biden to provide a clear update on the status of the American economy overall.
State of the Union Likely to Discuss the Debt Ceiling
As Barron’s noted earlier this month, after the U.S. reached the statutory debt limit of $31.381 trillion, the Treasury Department underwent “extraordinary measures” to prevent the federal government from defaulting on its obligations. Now, all eyes are fixated on Congress. Unless it agrees to raise the debt limit, the global economy may fall into disarray.
Complicating matters, of course, is that Republicans now control the House, forcing greater cooperation among policymakers. Bipartisanship will be no easy task. Recall that it took current House Speaker Kevin McCarthy 15 votes and extensive negotiations to secure the gavel. If Republicans can’t agree among themselves, cooperation on major issues with Democrats seems like an uphill battle.
Therefore, the State of the Union will be critical in assuaging anxieties related to national debt.
Biden Tax Proposal Could Secure Sentiment
According to MarketWatch, Biden will call for quadrupling the tax on corporate stock buybacks. Under the Inflation Reduction Act, the bill imposes a 1% tax on buybacks. According to political insiders, the new tax proposal will almost certainly be dead on arrival in the Republican-controlled House. Still, Biden can leverage the State of the Union address to bolster support among voters.
In particular, the White House became incensed with Chevron (NYSE:CVX), which the president implored to boost production amid soaring gas prices. Recently, the oil giant announced that it will repurchase $75 billion in shares. Naturally, Biden can frame this talking point as a rich-versus-everyone-else narrative. This might go a long way, as Americans are still hurting from last year’s inflationary surge.
State of the Union: About That Balloon…
As if the Biden administration needed any more drama ahead of the State of the Union address, a U.S. fighter jet brought down a suspected Chinese spy balloon on Saturday. Politically, the issue caused much debate between Republicans and Democrats. And it resulted in Secretary of State Antony Blinken calling off his planned visit to Beijing.
President Biden may need to discuss this issue to put a positive framing on the matter. However, defense stocks may start rising in anticipation of further frayed tensions depending on his messaging.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.