State Of The Union Fallout For Trade War, Pharma And Infrastructure Stocks

President Donald Trump delivered his highly anticipated State of the Union address Tuesday night. While Trump didn’t drop any major bombshells in the speech, he did touch on several issues that could impact financial markets.

Trade War

U.S. investors were hoping for a positive update on trade negotiations with China. The ongoing trade war rattled the market in the fourth quarter, and several major U.S. companies have blamed China for earnings and guidance misses. Trump said he didn’t blame China for taking advantage of the United States in the past.

“I have great respect for President Xi, and we are now working on a new trade deal with China. But it must include real, structural change to end unfair trade practices, reduce our chronic trade deficit, and protect American jobs,” Trump said.

On Wednesday morning, Treasury Secretary Steve Mnuchin said trade talks with China have been “very productive” ahead of a March 2 tariff deadline that could potentially ramp up tensions. Mnuchin is heading to China next week to continue negotiations and is optimistic about getting a deal in place before the deadline.

Infrastructure

Trump also emphasized the importance of an infrastructure bill.

“Both parties should be able to unite for a great rebuilding of America's crumbling infrastructure. I know that Congress is eager to pass an infrastructure bill, and I am eager to work with you on legislation to deliver new and important infrastructure investment,” Trump said.

During the 2016 campaign season, Trump called for a $1.5 trillion in infrastructure spending.

Drug Prices

Finally, Trump made some health care investors a bit nervous by taking a seemingly hardline stance on drug prices.

“The next major priority for me, and for all of us, should be to lower the cost of health care and prescription drugs -- and to protect patients with pre-existing conditions,” Trump said. “We should also require drug companies, insurance companies, and hospitals to disclose real prices to foster competition and bring costs down.”

Market Impact

Markets were mostly calm on Wednesday morning following the address.

Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance, said investors should keep expectations low for bipartisan cooperation in Washington.

“It is difficult to see how much bipartisan compromise will be possible in a year when a crowded field is running for President, but the pharmaceutical and construction subsectors could see moves tomorrow as investors assess how likely the former is to be negatively affected and the latter is to be positively impacted,” said Zaccarelli. “Ultimately there wasn’t a lot of market-moving information in the speech.”

Mark Hamrick, senior economic analyst at Bankrate.com, said the address didn’t do much for investors and business owners looking for clarity on China.

“Business leaders are struggling to work though the challenges associated with tariffs and uncertainty on trade policy, including whether the U.S. and China can forge agreement before next month’s deadline,” Hamrick said.

Hamrick said Trump’s discussion of an infrastructure bill was lacking in substance and specifics. “Anyone looking for more than passing mentions of new, detailed significant economic proposals was likely disappointed,” he said.

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