Hobbit Business Review

Why Investors Should Pay Attention To The State Of The Union

State of the Union addresses are a bedrock of America’s democratic republic. They typically don’t sway the audiences at home or in the seats of Congress, especially in this partisan day and age. But the 2023 State of the Union is an important milestone for President Joe Biden’s political future and his administrative agenda that could impact markets.

Does This State Of The Union Preview Meaningful Policy For Investors? Yes.

Presidents can use the State of the Union to bring new or obscure policies to the forefront. It was President James Polk who began the California gold rush in his 1848 message to Congress by giving legitimacy to the claims of gold out west.

Biden likely won’t move markets with his speech. Still, there is a lot of jockeying and lobbying among different Cabinet secretaries for the inclusion of just a sentence or two on a policy to be spoken by Biden in his address.

When Washington gave the first address to Congress, the executive branch was seen as a weaker institution than the legislative branch. Hence, Article 1 of the Constitution enumerates the powers of the legislative branch, much longer than Article 2 on the executive. But in the eyes of Americans today, that’s not the case. Executive powers have grown.

For Biden, it means having a robust executive and regulatory agenda that can provide tangible results for voters before 2024. It’s something that could impact several sectors of the economy. Just as one example, Biden this month announced at a meeting of the President’s Competition Council that the Consumer Financial Protection Bureau is proposing a rule that would cut credit card late fees from about $30 to $8. The administration is also focusing on airline fees, broadband fees, and ticket fees.

With high prices still top of mind of voters, expect Biden to focus on these fees and other definable actions in his address and re-election campaign. This means big fights between businesses and the executive branch in the year to come.

Does The State Of The Union Typically Matter? No.

It’s a tradition as old as the country itself. Article 2, Section 3 of the U.S. Constitution says the president “shall from time to time give to the Congress Information of the State of the Union.” President George Washington created the standard for an annual message, which has happened every year since the first one in 1790.

The annual address has become a more publicized affair, a way for the president to use the bully pulpit in front of not just Congress but the American people. President Harry Truman was the first to have his speech televised, and President Bill Clinton was the first to have it broadcast over the internet. Tens of millions of voters tune in every year.

For its historical and constitutional significance, the practical and political importance is limited. Biden’s last State of the Union had 38 million viewers. That’s 38% of the viewership of last year’s Super Bowl. Those who do watch tend to already be supporters of the president, as voters of the opposing party often skip it. According to a FiveThirtyEight analysis, the average change of a president’s approval rating from the speech is 0.2 percentage points and just 25% of policy proposals mentioned end up getting passed by Congress (that number is lower in a divided Congress).

The State of the Union isn’t always a memorable affair, but it can sometimes provide moments for a president to change the narrative. The right phrase can create a captivating narrative. Clinton in his 1996 address said, “The era of big government is over.” In the wake of 9/11, President George W. Bush referred to Iran, Iraq, and North Korea as the “axis of evil” in his 2002 address. These were narratives that stuck for years.

But presidents are not always in control of the optics. The most memorable moment of President Donald Trump’s addresses was in 2020 when then-House Speaker Nancy Pelosi (D-Calif.) tore up his speech at the end. President Barack Obama’s most memorable moments were when Rep. Joe Wilson (R-S.Car.) yelled, “You lie!” during a health care speech before Congress in 2009 and when Supreme Court Justice Samuel Alito mouthed the words “not true” during his 2010 address.

Does This State Of The Union Matter For Biden? Maybe.

Biden, who turned 80 last November, will be the first person to deliver a State of the Union as an octogenarian. He also is likely to run for re-election. This address could be viewed as an informal campaign kickoff.

Biden will want to project strength – the phrase or near phrase “The State of the Union is strong” has been uttered in every address over the past 30 years.

But for all intents and purposes, voters view the country and its leader as weakened. Only 23% of Americans say the country is heading in the right direction, according to an NBC News poll. This is the highest sustained pessimism in more than 30 years. According to a Pew Research Center poll, just 21% of Americans think the economy is “good” or “excellent” with a plurality believing it will only get worse (most believe the country is in or is about to enter a recession). The biggest concern remains high prices.

According to Gallup, Biden’s approval rating of 41% is only higher (and barely so) than Trump’s was at the same point in his presidency. The last president to win re-election when there was a recession in the second two years of his first term was President William McKinley in 1900. The lowest Gallup approval rating right before Election Day for an incumbent who won re-election was 48% for Bush in 2004. A majority of Americans – even Democratic voters – don’t want Biden to run for re-election.

It’s an inauspicious start to Biden’s third year in office. But as Biden often likes to say, “Don’t compare me to the Almighty, compare me to the alternative.”

Biden could have a two-pronged approach to his re-election. There’s the positive approach of showing to the American people and the world that lowercase democratic government can work. He wants to change the vibes recession into an investment and jobs boom. That means focusing on the accomplishments of the last two years (the implementation of infrastructure, manufacturing, and clean energy projects) and touting the record low unemployment.

Then there’s the negative approach of showing 2024 as not being a referendum on his presidency but a choice between Bidenism and “ultra-MAGA“. Just as Republicans are fighting over the next iteration of the Make America Great Again movement, Biden and Democrats are looking to define the opposition to it. It’s not just about Trump, the man (although that would be a big boost to Biden if Trump wins the 2024 GOP nomination). Biden may be unpopular, but the Republican House is even more unpopular. Democrats had the best midterms in 20 years for an incumbent’s party.

Biden’s address could preview a 2024 playbook akin to Truman’s in his 1948 election against the “do-nothing” Congress. Like Biden, Truman had a low approval rating of 40% with the country still reeling from postwar inflation in the double digits. Truman was focused on lowering prices but also blaming Republicans in Congress for not doing enough to address the issue. “We want to keep that prosperity. We cannot keep that if we don’t lick the biggest problem facing us today, and that is high prices,” Truman said on the campaign trail. “That Republican, 80th ‘do-nothing’ Congress absolutely refused to give any relief.”

On issues like the debt ceiling and inflation relief, Biden is contrasting his position of helping the economy get back on track compared to so-called “extremist” Republicans who could jeopardize it all.

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