Corporations and investors around the world will be tuned into U.S. President Donald Trump's prime-time address to both houses of Congress tonight, watching to see if the president plans to act on campaign pledges to lower corporate taxes, cut regulations and spend big-league on infrastructure and defence.
U.S. financial markets have been on a tear since Trump was elected last November, hitting record highs at least in part in anticipation of a pro-business agenda backed by the Republican Congress.
But Trump's unpredictable behaviour has also spooked Wall Street at times, leading to uncertainty about how the 45th president might steer the U.S. economy. Tonight's speech will provide more data for investors to chew on as they place their bets for the future.
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If stocks are going to continue making Trump-inspired gains, said one analyst, the president will have to avoid populist themes during his address and focus on business-friendly policies.
"The markets will be disappointed if we get round two of the inauguration speech from mid-January where the themes were about protectionism," said David Rosenberg, chief economist with wealth management firm Gluskin Sheff.
"I think a little less on economic nationalism, a little more on tax reform and deregulation, is going to be needed to justify the move that the market has made over the course of the past several months," he said.
Investors bet on infrastructure spending
After a meeting with state governors on Monday morning, the president said he was going to "have a big statement tomorrow night on infrastructure."
That echoes comments made last week by Trump's press secretary, who said the president and a group of U.S. business leaders discussed using public-private partnerships as "the cornerstone of a robust plan to rebuild the nation's crumbling infrastructure."
Defence spending could also feature in Trump's speech. On Monday, the president said he will propose increasing military spending by nearly 10 per cent in the next fiscal year, offset by spending cuts in other areas.
Stocks related to infrastructure and defence spending have surged since Trump was elected in November.
"There's a lot of optimism built into those stocks based on what people think he's going to do, and any signs of hesitancy on his agenda is going to hurt those stocks sharply," said Conor Bill, managing director at Mt. Auburn Capital.
But David Rosenberg of Gluskin Sheff thinks infrastructure bulls may be expecting too much from Trump, and sees corporate tax reform and deregulation as the biggest drivers of Wall Street's recent exuberance — and the most important themes for Wall Street in tomorrow's speech.
"We know that corporate tax reform is coming, the question is, what are the broad contours around that plan?"
Looking for concrete details
Even those broad contours could help investors justify the recent run-up in stocks, said one economist.
"We're certainly not going to see a detailed plan for quite some time, I think, and even when we do see a more detailed plan from the administration, of course, then we do have to think about whether that would actually pass Congress," said Paul Ashworth, chief North American economist with Capital Economics.
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During his campaign, Trump touted a plan to spend $1 trillion to rebuild the country's roads, bridges, and airports. Despite that, Ashworth doesn't see congressional Republicans approving any kind of direct government spending on public works projects.
"He might very well talk about infrastructure spending tomorrow, but that's probably the one area where he's least likely to get his way," he said.
If Trump does announce an infrastructure plan tonight, Ashworth expects it to be along the lines of tax incentives for private firms to build and administer public infrastructure projects.
In the meantime, U.S. investors are standing on the precipice, holding their breath. The Dow Jones Industrial Index closed at 20,812.24 on Tuesday before Trump's speech, down 25.20 points from the previous day's record high close.