Trader Talk

The Trump agenda is getting muddier, and that's worrying markets

Pedestrians holding umbrellas pass outside the New York Stock Exchange.
Michael Nagle | Bloomberg | Getty Images

Why are the markets down Monday? Because Donald Trump is straying from the themes that initial caused stocks to rise, but also because the trading community is starting to realize that even "clean" issues like corporate tax cuts are more complicated than they first seemed.

What moved the markets initially on the Trump election was tax cuts, and to a lesser extent hopes for infrastructure spending. The markets stopped rising in mid-December awaiting more news. When nothing happened, markets languished.

Stocks rallied last week when Trump started meeting with auto CEOs, issued executive orders on pipelines and the environment, and the Democrats got into the act with a $1 trillion infrastructure proposal.

Get it? Tax cuts and infrastructure spending and the reflation theme move the markets. No news on this, markets languish. And when markets perceive that the priorities are with other issues like immigration policy and trade issues and Obamacare—issues that are perceived to be potential quagmires—the markets drift lower.

And when the markets sees Trump focusing on issues like a possible tightening of the H1B visa, a visa near and dear to the tech community, you can see an immediate negative response. Big tech and especially software names are all down because this may directly threaten the ability to bring in talent no matter where it is.

If you don't think reports that President Trump is drafting orders to overhaul the H1B work visa program isn't alarming Wall Street, here's what Morningstar had to say about this on Friday:

"[A] growing number of software development talent is coming from international markets, while various industry sources believe India will become (if it has not already) the largest center for software development talent in the world...we believe tighter immigration and H1B visa regulation could have a material impact on the ability of these firms to not only hire the people they need, but could also lead to a spike in the requisite compensation to hire such talent."

There's an even deeper problem: a growing realization that the tax cut issue is more complicated than it seems. What the market wants is a clean, across the board reduction in taxes from 35 percent to, say, 20 percent. But Trump is greatly muddying the water by focusing on issues like border adjustability taxes and caps on deductions, and we haven't even got to repatriation of overseas capital.

Bottom line: It's going to be a messy first 100 days. The shame is earnings are slowly improving, but with so much policy uncertainty CEOs have been reluctant to crow about 2017 earnings boosts from any of the Trump agenda.