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Investors have swapped Fed monetary policy expectations for Trump's tax talk

After today, any lingering doubts about what moves the market—namely, talk of tax reform—should be laid to rest.

The S&P 500 Index moved almost 8 points in the hour after President Donald Trumpsaid he would have the outlines of a tax reform package in a couple weeks. In particular, bank stocks moved because bond yields rose.

The small-cap Russell 2000, which has been underperforming since mid-December, also rallied. Small companies would be among the biggest beneficiaries of a tax cut.

Never mind that House Speaker Paul Ryan indicated that Obamacare would be a priority, and that tax reform wouldn't come until the spring at the earliest.

"It's just the way the budget works that we won't be able to get the ability to write our tax reform bill until our spring budget passes, and then we write that through the summer," Ryan said last week. He added that an infrastructure package "comes out of our spring budget, as well."

Never mind all that! The president said we will have more on tax reform—very soon.

Donald Trump
Carlo Allegri | Reuters
Donald Trump

The markets moved in response.

What does this tell investors? It confirms that tax reform is what pushes prices higher in the broader context of the Trump rally. It also confirms that the path of least resistance for the markets is higher, not lower.

Why? Because the markets move up whenever Trump talks tax reform or infrastructure spending. However, when the stuff the market doesn't like is in the spotlight—such as Obamacare, immigration, and trade wars—the market either moves sideways or drifts slightly lower, on light or moderate volume.

Simply put: good news moves markets up, bad news only makes the market drift.

In a way, this reminds me of the market five years ago when anything the Federal Reserve said moved markets. Remember quantitative easing (QE)? Remember the "taper tantrum", when investors feared less aggressive Fed easing?

Now we have the 'Trump trade' on good days for the market—and we have the 'Trump tantrum' on bad days.

We have swapped the Fed for Donald Trump!

  • Bob Pisani

    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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