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This is the latest twist in the Trump trade that markets need to watch

Markets have something new to look forward to — a Trump tax announcement — and that will be something that will be gamed by traders for the next several weeks.

Before Thursday, stocks were a bit sluggish this week, bond yields slidto mid-January lows and the dollar wasn't all that perky. But gold was having a good rally. Part of the reason was that the postelection promise of tax reform, one of the key drivers of stocks, looked less and less likely to be fulfilled this year.

But just oneline from President Donald Trump reversed that and sent stocks flying to new highs. Bond yields snapped back and the dollar rose. Trump promised a "phenomenal" tax plan "in the next two or three weeks," during a meeting with airline executives at the White House.

President Donald Trump speaks during a meeting with airline industry executives, including Myron Gray (R), President of U.S. Operations at UPS, in the State Dining Room of the White House in Washington, February 9, 2017.
Saul Loeb | AFP | Getty Images
President Donald Trump speaks during a meeting with airline industry executives, including Myron Gray (R), President of U.S. Operations at UPS, in the State Dining Room of the White House in Washington, February 9, 2017.

"There are many people like myself that were getting somewhat negative on the timing of the tax plan given all the political capital Trump is spending on immigration," wrote Andrew Brenner, global head of emerging market fixed income at National Alliance.

Trump meets with Prime Minister Shinzo Abe at the White House Friday, and traders are watching for headlines on things like trade that could move currencies, as well as plans for Japanese investment in U.S. infrastructure. The exchange between the two leaders will be watched closely for signals on what type of relationship they might have, since Trump recently listed Japan as a country that depresses its currency and harms the U.S.

There are a few economic reports Friday, including import prices at 8:30 a.m. ET and consumer sentiment at 10 a.m.

On Thursday, the major stock indexes closed at new highs. The Dow rose 118 to 20,172, the S&P 500 was up 13 at 2,307 and the Nasdaq was up 32 at 5,715.

"Everybody keeps talking about holes in the Trump trade, but I don't see any leaks," said Scott Redler, partner with T3Live.com.

"We saw historic highs all across the board, and there's really no reason for it not to continue," said Redler. "Banks haven't broken to highs of 2017, but they were stronger today. Trump's carrot of a huge tax program coming soon put some shorts on edge, because nobody wants to be short the market if he's going to come up with big tax cuts. It could turn into a 'buy the rumor, sell the news' when it gets announced."

But for now, the markets have something to look forward to, though the process of getting tax reform through Congress is not likely to be all smooth sailing.

"It's been a Trump Kool-Aid rally since Nov. 8 on the hopes of tax cuts. Now we'll see what he's going to do. If all he's going to do is back the Ryan plan, he's been behind that already," said Peter Boockvar, chief market analyst at The Lindsey Group.

The corporate tax reform plan pushed by House Speaker Paul Ryan contains a plan for a border-adjustment tax, which would tax U.S. imports at a rate of 20 percent and not tax exports.

"It's hugely controversial," said Boockvar. He noted that could drag out the process since it is already being opposed by members of the Senate, and importing and exporting companies are lining up on both sides of it. If there is no border-adjusted tax, analysts say the proposed tax rate would have to go to 25 percent from the hoped for 20 percent. The current tax rate is 35 percent, but S&P 500 companies pay an average of about 25 percent.

"We're going to see a cut in the corporate tax rate. It's just a matter at what level and to what extent we've priced it in. Earnings should go up 5 to 10 percent if there's tax reform. We sort of priced in the expected improvement in earnings from that tax plan," Boockvar said.

Jack Ablin, CIO of BMO Private Markets, said there's some sign the tax plan was priced in to fourth-quarter earnings since the margins expected between revenues and earnings are unusually high.

"We all knew that it was in the hopper, but he seems like he's pushed it toward the front of the cue so that's encouraging for people," said Ablin.

The market has already been anticipating two days of testimony from Fed Chair Janet Yellen before congressional panels Tuesday and Wednesday.

Bond yields had been falling as it appeared to traders that the Fed was unlikely to consider a rate hike at its March meeting. But the Yellen comments could change that view if she sounds more hawkish.

Bond yields were higher Thursday morning, but Trump's tax comment sent them even higher. The 10-year yield was at 2.40 percent in late trading, after touching a low of 2.32 percent Wednesday.

Justin Lederer, interest rate strategist at Cantor Fitzgerald, said the market will focus on economic data but the real movers could be the Fed.

"You have Yellen, and we have to wait two or three weeks to see what the tax announcement looks like," Lederer said.

Boockvar said if the Fed does want to focus the market on March, Fed Vice Chairman Stanley Fischer speaks Saturday and he could make some hawkish comments ahead of Yellen, who would then reinforce the message. For now, the Fed forecasts three rate hikes this year, but the market is looking for more like two, with the next one in June.

Dovish Fed member Chicago Fed President Charles Evans said Thursday that three rate hikes look reasonable for this year.