NEW YORK (TheStreet) -- This year's State of the Union Address is likely to be different in tone and substance from last year's address. At that time, the President's tone was forceful as he voiced strident attacks on the business community and the substance of his anti-business agenda included financial services reform, climate change legislation, the termination of various oil tax breaks, carried interest, and federal subsidies to banks making student loans. His address was delivered in the midst of an 8% pullback in the stock market, as measured by the S&P 500.Since the mid-term elections, the President has taken numerous steps toward the political center and is now embracing business interests.
One area where the President could hope for a centrist legislative achievement is to cut a deal with the Republicans to reduce the deficit by tackling a major entitlement program like social security. While President Obama is well aware of the political pitfalls, and of the political consequences of his predecessor's reform effort, he may indicate his openness to the reform proposals of others in his address. While any action is a long shot, if the President signals a willingness to open a discussion to address this very costly program it may be bond market friendly.
It is important to remember that corporate tax receipts are less than 10% of total federal tax receipts and corporations can relocate. Corporate tax rates are falling around the world. The consequences of inaction can be severe for politicians -- one of the reasons the Prime Minister in Australia was removed by his own party last year was for overtaxing the mining companies. In summary, President Obama's State of the Union address is likely to be more pro-business in contrast to the anti-business tone of last year's address. This may provide a more favorable backdrop for the stock and bond markets as we head into February -- historically, one of the weakest months of the year for the S&P 500 with an average monthly loss of -0.3% since the start of the index in 1927.