What Wall Street wants from Obama in State of the Union address

President Obama has responded to recent setbacks by striking a more populist tone, and his primary target has been Wall Street. Bankers are hoping he takes a more inclusive line in his State of the Union address Wednesday.

Richard Drew/AP
A television screen on the floor of the New York Stock Exchange shows President Barack Obama's address to a town hall meeting in Elyria, Ohio, Friday.

Wall Street has its own wish list of what it would like President Obama to say in his State of the Union address Wednesday night. A good portion of it, however, may not go down well at the White House.

If it were up to Wall Street, the president would strike a less confrontational posture toward the finance industry than what they've seen lately. Many would prefer that he unveil only a modest jobs stimulus package in the 2011 budget. And, although many market commentators expect some kind of tax hike on capital gains and dividends, they think any tax hike is a bad idea while the economy is still recovering from recession.

On the top of their wish list is a kinder, gentler tone.

Some Wall Street executives have cringed as Mr. Obama has adopted a more populist rhetoric. He has recently attacked Wall Street for its greed and bonuses, and he said he’s ready to “fight” bankers if they oppose a new tax he wants to impose on their industry.

Since the president has donned his boxing gloves, the stock market has had a tough time, falling about 5 percent.

“It suggested [that] the president is confrontational with business,” says Jeffrey Kleintop, chief market strategist at LPL Financial in Boston. "A tone that says he is open to working together, to bring the best minds together, would be welcome.”

Anger in the pinstripe set

Obama's attacks on the banking establishment rub many in the pinstripe set the wrong way. One is David Kotok, chairman of Cumberland Advisors, a Vineland, N,J., investment manager.

“I would like him to say he will stop vilifying bankers and Wall Streeters, and that he understands that many, many Americans are invested in US stocks and bonds in their 401(k)s. When he throws out mean-spirited commentary about the bankers, he is doing it to all those who are invested in them.”

Many on Wall Street expect Obama to seek another job stimulus package. But they don’t want to see another massive package similar to the $787 billion economic recovery package that Congress approved last February.

“Anything over $200 billion will be way too big, a waste of money,” says Mr. Kleintop, who suggests that the bond market would be happy with anything under $150 billion.

Cool to a spending freeze

Even before the speech, the administration has floated the idea of a freeze on federal discretionary spending, representing about 17 percent of the budget. But “Wall Street," Kleintop says, "sees right through a freeze.”

Indeed, Scott Brown, chief economist at stockbroker Raymond James & Co. in St. Petersburg, Fla., says the bigger problem is entitlement programs, such as Medicare, Medicaid, and Social Security.

“A three-year freeze on discretionary spending – as Obama is proposing – does not leave you with a lot,” says Mr. Brown.

Fred Dickson, chief market strategist at D.A. Davidson & Co. in Lake Oswego, Ore., travels a lot in the Pacific Northwest. He says he would like Obama to soothe the fears of businesses that they are facing “massive tax increases for health and energy.”

“Everywhere I go, I hear people say they could start to throttle up hiring and increase work hours but they are afraid they will get hit with a massive tax increase.”

No new taxes

At the same time, many Wall Street economists would like to see the president suggest rolling back the tax increases that kick in with the expiration of the Bush tax cuts for relatively well-to-do wage earners, whose highest marginal tax rate will rise from 35 percent to 39 percent.

“Raising taxes is the last thing you want to do in an economic environment like this” says Robert McIntosh, chief economist at Eaton Vance, a mutual fund group in Boston. “Along with this, I don’t think it makes sense to raise the dividend and capital gains tax rates.”

Mr. McIntosh, like others on Wall Street, would also like to see Obama reduce the budget deficit. On Tuesday, the Congressional Budget Office said the budget deficit for 2010 would fall slightly, to $1.395 trillion.

“We must get it well under a $1 trillion,” says McIntosh.


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