For investors, Obama's tone more important than substance

Tue Feb 12, 2013 1:22pm EST
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By Wanfeng Zhou

NEW YORK (Reuters) - U.S. investors have had plenty of reasons to worry about what goes on in Washington, from "fiscal cliff" fears to concerns about a debt default or government shutdown. But President Barack Obama's State of the Union address on Tuesday night is unlikely to be one of those reasons.

Unless Obama's speech is so combative that it heralds even uglier battles with Republicans over the budget, market strategists say, it is unlikely to derail a stock market rally that has pushed the S&P 500 index to just a few percentage points from all-time highs.

The president is expected to strike an optimistic note on the U.S. economy, highlighting the prospects of job growth. That should help maintain the positive tone in financial markets, analysts said, even though the White House and Congress still have to cut a deal to delay or modify "sequestration," the $85 billion in automatic spending cuts due in March.

"The apex of the political impact on the markets was reached at the end of the last year with the 'fiscal cliff' drama and soap opera," said James Dailey, portfolio manager at TEAM Asset Strategy Fund in Harrisburg, Pennsylvania.

"The built-in expectation right now is they will kick the can down the road again with the sequester," Dailey said.

Wall Street broadly sees the State of the Union speech as an opportunity for the president to present long-term goals, many of which are unlikely to come to fruition.

The chances that Obama will announce concrete measures that will excite investors are viewed as slim, though he could give a nod to corporate tax reform, which carries the possibility of lower tax rates on the repatriation of overseas profits.

On the downside, Obama could suggest raising tax rates again to help close the deficit, or target tax benefits for specific industries such as oil and gas, or again mention eliminating the "carried interest" provision that reduces taxes for investment managers.   Continued...

Traders work the floor at the New York Stock Exchange in New York December 20, 2012. REUTERS/Andrew Kelly (UNITED STATES - Tags: BUSINESS) - RTR3BS8O