Special Counsel's report may not be special for markets

Thought of the day

by Chief Investment Office 18 Mar 2019

There is increasing speculation that US Special Counsel Robert Mueller is about to release his long-awaited report investigating alleged links between President Trump's campaign and Moscow in the run-up to the 2016 election. And late last week the US House of Representatives voted 420-0 in favor of a non-binding resolution to release Mueller's findings to Congress and the public. In parallel with the impending Mueller report, various House committees are initiating investigations into President Trump, his finances, his business, his family, and his administration’s activities. These probes have fueled speculation that the Democrat-controlled House may initiate impeachment proceedings if evidence of serious wrongdoing is found through these exercises.

But while these investigations may remain significant politically, we believe they are unlikely to shake markets.

  • Any decision to impeach President Trump still looks remote. While her position could change after the release of the Mueller report, House Speaker Nancy Pelosi has said as recently as 11 March that she did not favor impeachment. And even if House Democrats ultimately decide to press for the removal of President Trump, they have a high constitutional hurdle to clear. Only two sitting presidents – Andrew Johnson in 1868, and Bill Clinton in 1998 – have faced impeachment proceeding. And ultimately neither were impeached. (Richard Nixon resigned from office.) That’s because the House vote on impeachment must be followed with a Senate vote to convict the president and thus remove him from office.
  • The market was not significantly impacted by the launching of the Mueller report. While news of the launch of the Mueller inquiry in May 2017 coincided with a 1.8% one-day fall in the S&P 500 index – one of the largest single-session drops of the year – the impact was short-lived and the index rallied again to an all-time high in the following week. We would not be surprised to see a similar short-term market reaction at some point in the aftermath of the report, but its impact would likely be fleeting.
  • Replacing President Trump might not significantly change the outlook for US policy. If President Trump were removed from office, his constitutionally anointed successor would be Vice President Mike Pence. Pence’s record suggests a reliably conservative approach that would continue the current status quo trend of the Trump administration on most issues. Markets might even find a Pence presidency to be a modest positive on issues like trade. During Pence’s time in the House, he voted for every free-trade agreement that came before him, and it seems that he would be more likely to agree to a deal with China – and back off on other trade threats – than the current administration.

So, while markets are likely to experience bouts of volatility amid political uncertainty, this alone is not enough to trigger a recession or end a bull market. For those who feel strongly about the politics of this issue, we recommend expressing your views with a vote instead of a trade. For more detail please see our report: "POTUS 45 Investment implications of political investigations."

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