I have a simple question…

If the rally in the market that began following the election was pricing in the expectations for tax reforms, repatriation, building the wall, and infrastructure spending, then what did the rally on Wednesday following Trump’s speech to Congress price in?

With the markets now pushing both a 3-standard deviation extension above the 50-dma AND an almost 9% deviation above the 200-dma, there is little argument of the overbought condition that currently exists.

But such rational logic seems to no longer apply.

At least for now.

There is just one thing to remember. The markets price in future expectations for the impact of expected events. So, a tax cut here, an infrastructure plan there, all suggests a positive impact to the bottom line of corporate earnings and a valid reason for pushing asset prices higher.

No argument here. I am currently well positioned in portfolios on the long side of the market for now.

The question that must be answered is just how much of the benefit from these fiscal proposals have already been priced in perfection? What happens if tax reform is less than anticipated? Or infrastructure spending is cut from $1 Trillion to $500 billion? Or repatriation only brings back a fraction of the dollars anticipated? 

Let’s zoom out for a second and look at the pre- and post-election through the end of last year for clarity.

Oh, shoot!… Sorry, that was 1999. Here is last year.

Just some things I am thinking about this weekend as I catch up on my reading.

Trump/Fed/Economy

  • The Five-Tool Bond Market by Danielle DiMartino-Booth via Money Strong
  • The Next Signal To Watch by Jim Rickards via The Daily Reckoning
  • Trump Takes A Reckless Stance On Economy by Veronique de Rugy via Reason.com
  • Essential Optimism Reigned In Trump’s Address by Larry Kudlow via RCM
  • Corporate Tax Reform Won’t Fix Our Problems by Money Map Press via HVST.com
  • Trumps Economic Plan & Costs by Shawn Tully via Fortune
  • No Fiscal Case For Fed’s Large Balance Sheet by Larry White via Alt-M
  • How Trump Should Approach Tax Cuts by Matt Lewis via The Daily Beast
  • Trump Viewed Differently By Stocks & Bonds by Caroline Baum via MarketWatch
  • March 15th: Everything Grinds To A Halt by David Stockman via ZeroHedge
  • Trump’s Mysterious Stock Boom by James Surowiecki via The New Yorker
  • The Problem With Wages Starts At Home by Eduardo Porter via NY Times
  • Is More Debt The Key To The American Dream? by Jeffrey Harding via Independent Mind
  • Why Trade Deficits Are Good by Simon Constable via Forbes
  • Trump & The Economy by George Perry via RCM