Trump speech to emphasize military, Obamacare. Stocks trade flat

For the second day in a row, stocks tread water slightly on the downside, awaiting reaction to President Trump’s Tuesday evening address to Congress.

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WASHINGTON, February 28, 2017 – The online edition of Fortune has run an AP report indicating that President Donald Trump’s Tuesday evening address to a joint session of Congress will emphasize big boosts to defense spending and law enforcement, commensurate big cuts to most areas of the President’s upcoming budget—particularly aiming at the EPA, but at other wasteful agencies and programs as well.

Notes the report:

“President Donald Trump is proposing a huge $54 billion surge in U.S. military spending for new aircraft, ships and fighters in his first federal budget while slashing big chunks from domestic programs and foreign aid to make the government ‘do more with less.’

“The Trump blueprint, due in more detail next month, would fulfill the Republican president’s campaign pledge to boost Pentagon spending while targeting the budgets of other federal agencies. The ‘topline’ figures emerged Monday, one day before Trump’s first address to a joint session of Congress, an opportunity to re-emphasize the economic issues that were a centerpiece of his White House run.

“Domestic programs and foreign aid would as a whole absorb a 10%, $54 billion cut from currently projected levels—cuts that would match the military increase. The cuts would be felt far more deeply by programs and agencies targeted by Trump and his fellow Republicans, like the Environmental Protection Agency as well as foreign aid. Veterans’ programs would be exempted, as would border security, additional law enforcement functions and some other areas.”

Infrastructure would also get a big boost, with the President losing some Republican budget cutters in this area, while perhaps gaining a few otherwise antagonistic Democrats whose states or districts badly need Federal dollars in this area.

“‘We’re going to start spending on infrastructure big. It’s not like we have a choice—our highways, our bridges are unsafe, our tunnels,’ the president told a group of governors at the White House on Monday. He added, ‘We’re going to do more with less and make the government lean and accountable to the people.’”

Traders and investors seem to be holding their bets Tuesday morning, uncertain how this news as well as other elements expected in this address (like Obamacare) will be received.

Read also: Trading Diary: Stocks tread water awaiting news from D.C.

It’s a virtual certainty that Congressional Democrats will in some way, shape or form busy themselves with some variety of grandstanding or virtue signaling to support their increasingly radical and violent base. Their ongoing temper tantrum virtually assures that Republicans in the Senate will not only have to unify with the President on key issues and likely run roughshod over the Democrats to pass even a portion of the legislation the party supports.

Despite its post-November 8, 2016 exuberance, markets seem to sense they may get only a fraction of the economic boost they originally expected in 2017, given the near-absolute lack of comity in either house of Congress, the lingering effect of the 8-year Obama-Reid-Pelosi scorched earth policy meant to initially marginalize and then destroy the Republican Party.

At least some Republicans—justifiably—have a long memory and won’t soon forget this abuse and disenfranchisement. And rational Republicans, for their part, must realize that playing nice right now will provide zero rewards if and when the Democrats take back either house. It will likely be an ugly year no matter what actually transpires, and the markets, trading on relatively low volume, seem to be anticipating this, at least Tuesday morning.

Some of this smoke will likely clear by the time the 9:30 a.m. trading bell rings on Wall Street Wednesday morning. Until then—or until some Obama holdover leaks elements of the president’s speech later today—we suspect most traders and investors will be sitting on the sidelines.

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