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State of the Union Address 2019: What investors are watching

President Donald Trump will deliver his second State of the Union Address Tuesday at 9 p.m. ET.

A large swathe of the anticipated political commentary will be of little consequence to market participants. However, investors will be on watch for several key policy themes, which could carry implications for a host of sectors.

“Infrastructure, drug pricing, immigration reform, housing finance reform and compromises on government funding are likely to be added to the 2019 agenda tonight,” Ed Mills, Raymond James managing director and policy analyst, said on Tuesday.

Other points that may be discussed, though, will be largely shrugged off by markets, some analysts speculated.

“The Mueller investigation, the investigation into the Trump inauguration committee and so forth would only matter if they affected the President's ability to get things done in Washington,” UBS Global Chief Economist Paul Donovan said.

Below’s a closer look at the major topics investors will be watching in Tuesday’s address.

U.S.-China trade relations

Among the top concerns will be the issue of U.S.-China trade relations. Investors will seek clarity on the direction of ongoing negotiations between Washington and Beijing, which will need to produce a deal before March 2 when the Trump administration is set to raise the rate of tariffs on goods made in China.

“Trade tariffs have become a tax on equity markets. All things considered, equity markets would prefer it if they were not taxed – so anything that hints at a beautiful chocolate cake moment with Chinese President Xi would be well-received,” Donovan said.

Most recently, Chinese Vice Premier Liu He met with officials including U.S. Trade Representative Robert Lighthizer and Trump himself in Washington last week – but few details about progress made during the talks have been divulged.

In this Feb. 1, 2019, photo, President Donald Trump speaks in the Cabinet Room of the White House in Washington. The White House says Trump will call for optimism and unity in his State of the Union address, using the moment to attempt a reset after two years of bitter partisanship and deeply personal attacks. But skepticism will emanate from both sides of the aisle when Trump enters the House chamber Tuesday for the primetime address to lawmakers and the nation. (AP Photo/ Evan Vucci)
In this Feb. 1, 2019, photo, President Donald Trump speaks in the Cabinet Room of the White House in Washington. (AP Photo/ Evan Vucci)

Trump wrote in a series of Twitter posts on January 31 that he and Chinese President Xi Jinping will “meet in the near future,” giving markets a boost during that day’s trading session.

“We expect an optimistic tone on President Trump's desire to strike a deal, but we remain cautious that these headlines are likely to whip around during any verification or enforcement phase,” Mills said.

Government shutdown

The government will re-enter a partial shutdown if congressional lawmakers fail to pass legislation to a host of major government agencies by February 15. Market participants will be looking for signs in the State of the Union Address on how Trump will address friction with congressional Democratic lawmakers, who have blocked his requested $5.7 billion in funds for a barrier at the southern border.

Trump told reporters late last week there was a “good chance” he would invoke a national emergency to obtain funds for his long-promised border wall – and this declaration could potentially come as soon as Tuesday night’s State of the Union Address.

“Congressional Democrats and the Trump Administration remain far apart on how to fund the government past February 15 and what should be done for border security. There is bipartisan congressional desire to avoid another shutdown and we believe that is the base case,” Mills said. “We will be watching if the president announces a national emergency declaration on border security – which would punt the fight to the courts/would likely start a new round of congressional backlash.”

Market participants “get nervous about government shutdown,” Donovan added. “The Federal Reserve is unlikely to change policy if the U.S. government is doing an impression of anarchic chaos. So hints as to the president’s thinking on these areas may matter to investors.”

Drug pricing

Trump may also address drug pricing and increasing pharmaceutical costs – concerns which have been rare bipartisan issues among lawmakers on both sides of the aisle. Last week, committees from both the Republican-led Senate and Democratic-led House held hearings to address rising drug prices.

“The President could highlight his recent drug pricing measures like the drug rebate reform proposal or the Medicare Part B drug reforms proposed,” Mills said. “When giving any speech, the President has a tendency to go off script. If he goes off script and wants to make a splash, he may say the administration may look at importing drugs.”

The Trump administration has recently proposed ending a series of drug rebates drug-makers pay to pharmacy benefit managers in programs like Medicare. The move has been aimed at deflating high list prices of many pharmaceuticals.

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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