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There's really only one thing Wall Street is listening for in Trump's speech to Congress

Mar 1, 2017, 02:14 IST

Donald Trump signing an executive order withdrawing the U.S. from the Trans-Pacific Partnership trade dealGetty Images

President Donald Trump will address a joint session of Congress on Tuesday night.

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According to a preview from the White House, Trump will call for unity across party lines, and discuss how he wants to work with Congress to deliver on his promises, among other things.

But any information on his plan to lower the corporate tax rate to 15% from 35% will stand out to Wall Street.

"As an analyst that covers public securities, I think all of us are interested in the corporate tax rate," said Carl Reichardt, a homebuilding analyst at BTIG. "Obviously, if the corporate tax rate is cut substantially, that's going to be impactful to the companies that we cover."

Last week, Treasury Secretary Steven Mnuchin said tax reform would be done with by the Congressional recess in August. "It will be very significant - it's going to be focused on middle-income tax cuts, simplification, and making the business tax competitive with the rest of the world," he told CNBC.

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Trump may not go into any more details on Tuesday besides a call to Congress for implementation, taking a cue from former presidents.

In his 1981 speech, President Ronald Reagan spoke on inflation and unemployment issues before promising "a 10-percent across the-board cut every year for three years," according to Politico. Congress delivered later in the year.

President Bill Clinton also called on Congress to deliver a 31%-36% tax hike on people who earned more than $180,000 a year. A majority Democratic Congress passed this proposal possible six months later, Politico added.

And as far as Trump's possible proposals go, several analysts have estimated the impact of corporate tax cuts on the companies they cover.

"Assuming that the US adopts a new corporate tax rate of about 25%, with most of the rest of the code left the same, we expect S&P earnings per share of $130-140 in 2017 and $140-150 in 2018," said David Bianco, Deutsche Bank's chief investment strategist for the Americas. Earnings per share were $108.86 last year.

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Many expect that a lower tax rate would encourage companies to repatriate overseas earnings that had been left abroad for tax reasons. According to David Kostin, the chief US equity strategist at Goldman Sachs, companies will return $200 billion of the $1 trillion of cash held overseas in 2017. As much as $150 billion, or 75%, would be spent on buying back their own shares, which has previously supported the stock market.

Meanwhile, just the expectation for a more favorable tax rate and deregulation has lifted business and consumer confidence.

"The market's perspective would be 'the deeper the cut the better' from an immediate-reaction-in-the-stocks perspective," Reichardt said at a briefing on Tuesday. The benchmark S&P 500 is up 10% since the election, and the Dow Jones industrial average entered one of its longest streaks of record highs ever.

But Wall Street still needs some patience while the details are being worked out, and more importantly, implemented. Amid the cheer for corporate tax cuts, there's the proposed border adjustment tax, a 20% charge on imports that companies and consumers could end up paying for.

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