Everyone has an opinion about the hypothetical Trump impeachment and how it would affect stocks.
The president, in his usual self-effacing style, believes the world would end if he were to be impeached, or at the very least, we’d all become poor. In DJT’s version of world events, it would be darn near impossible to imagine a White House without him in it.
For the rest of us mere mortals, life will undoubtedly move on. It always does.
Removing my tongue from my cheek for a moment, I would like to discuss the reasons Trump’s impeachment would have virtually zero effect on stocks. At the very heart of the matter is the fact I don’t believe Americans are naive enough to think one man makes that much difference to the world at large.
Should the real thing happen, I’m sure there are plenty of Trump supporters out there that will email me to tell me he told us so. And they would be correct.
Reasons Trump’s Impeachment Won’t Crash Stocks
Many Americans Don’t Own Stocks
Despite the push to get Americans contributing in their 401k’s, a lot of working people don’t own stocks, exchange-traded funds or mutual funds.
According to Gallup, just 54% own equities of any kind, in taxable, tax-deferred and tax-free investment vehicles. Worse still, 66% of Americans don’t have or participate in a 401k.
Who exactly would be “poor” under a Trump impeachment?
“Despite the fact that 46% of households owned stock shares either directly or indirectly through mutual funds, trusts, or various pension accounts, the richest 10% of households accounted for 81% of the total value of these stocks,” stated Edward Wolff, professor of economics at New York University in a 2017 paper about household wealth trends.
So, the ones that would be hurt the most, in the short-term anyway, are the people who can most afford to lose money in the markets.
Are we supposed to feel sorry about that? It’s a non-issue.
Reasons Trump’s Impeachment Won’t Crash Stocks
The Markets Don’t Care Who’s in the Oval Office
Ben Carlson’s A Wealth of Common Sense is one of the best sources of interesting ideas on the web. I don’t know how he finds the time, but as the young kids like to say (sounding very old), he’s the bomb!
Anyway, Carlson’s Aug. 28 post speaks to the issue of Trump’s impeachment crashing the markets. As always, he cuts to the chase.
“Markets don’t care who the president is. People may not like to hear this but it’s true,” Carlson wrote. “Investors care about earnings, interest rates, trends, and sentiment. The stock market and the economy are bigger than any one person or one administration.”
That last sentence I’ve alluded to in my final reason Donald Trump’s impeachment wouldn’t crash the markets. If Trump were smart, he’d stop while he’s ahead. His economy is doing well, and the markets know this from the earnings reports we’re getting.
Gloating sets himself up for failure because markets have a funny way of going up — and down.
Reasons Trump’s Impeachment Won’t Crash Stocks
Mike Pence Is Donald Trump Without the Bad Hair and Twitter Issues
Politics aside, Mike Pence isn’t an idiot.
He can see that the economy is doing well. Were Trump to be impeached and removed from office, the former Indiana governor would be the new president; it’s unlikely he’d do much tinkering with the administration’s economic policy since it’s working.
“His elevation to the Oval Office could lift a heavy burden from the stock market: CEOs’ expectations of lower profitability due to Trump’s trade war,” said Peter Cohan, lecturer of strategy at Babson College.
However, one area that Pence would likely tinker with is around the subject of tariffs. Indiana does a lot of business with Canada — estimated at $7.3 billion, the 10th highest amount among the 50 states — and other places outside the U.S.
“If there is one man in Washington who has good reason to oppose Donald Trump’s protectionist passions, it is his veep,” wrote Globe and Mail contributor Lawrence Martin, Aug. 29. “Mr. Pence’s hometown is Columbus, Indiana, population 50,000 … It is being hit square in the gut by Mr. Trump’s tariffs, particularly steel and aluminum import levies.”
Canadians would breathe a sigh of relief if Trump were replaced and so too would many Americans in places like Indiana.
Reasons Trump’s Impeachment Won’t Crash Stocks
It’s the Economy, Stupid
Donald Trump is right about one thing: The economy is currently firing on all cylinders. And stock prices follow corporate profits.
“With a very strong earnings season and corporate profits enjoying the fruits of a recovery that’s gained momentum over the past five years or so, this type of news is not directly affecting the reality of strong earnings,” said Steve Frazier, investment manager at Wakefield, Rhode Island-based Frazier Investment Management. “Real news of underlying fundamentals like borrowing costs, earnings growth, and GDP will continue to move markets as we’ve seen over this past economic cycle.”
They say the markets are usually six months to a year ahead of reality, so given the fact that we have 4%-plus GDP growth, record profits and share prices, it’s hard to imagine what it would take to knock things off course.
One thing that rarely gets factored into stock prices is small business confidence. Small businesses create a lot of the jobs in America, and when confidence is high, people spend, and when people spend, profits go up.
Survey Monkey started a small business confidence survey in the second quarter of 2017. In the 18 months since launching the quarterly survey, Q2 2018’s finding that 58% of 2,000 small-business owners surveyed thought current business conditions were good, is the highest percentage since the survey’s inception.
This statistic could be materially more important than higher profits at public companies.
Reasons Trump’s Impeachment Won’t Crash Stocks
Impeachment Is Already Priced In
Benjamin Graham called the markets a voting machine in the short-term and a weighing machine in the long run.
Ultimately, it is quality companies that get the highest weightings from investors, not the flashiest or trendiest.
While the idea of a Trump impeachment has the business media in a tizzy over what will happen to stocks, the tendency of stock markets to be forward thinking suggests investors have already priced this into the equation, leaving very little to chance.
University of Chicago Law and Economics professor Todd Henderson recently wrote an op-ed that appeared in CNN Money that covered some of the main issues surrounding Trump’s impeachment and the markets.
“The probability of a political event like an impeachment is already baked into the stock price of every company,” Henderson wrote Aug. 29. “Markets (meaning buyers and sellers of stock) are constantly adjusting their estimates based on news of all kinds, whether it’s about consumer demand for a particular product, tariffs, the president’s latest tweet or even his impeachment. The prices of stocks today reflects these estimates.”
He’s not wrong.
However, we all know that investor psychology is a very fragile thing. Mr. Market might be utterly stress-free today and panic-stricken tomorrow.
That said, the big institutions, pension funds, sovereign wealth funds and all the other major players in the asset management game hire a lot of smart people to assess risk.
An impeachment of Trump being one of them.
Reasons Trump’s Impeachment Won’t Crash Stocks
He’s Only One Man
Donald Trump is by far the biggest self-promoter that has ever worked in the White House. Aliens looking down on the U.S. must think God himself is occupying the Oval Office.
“Our Economy is setting records on virtually every front – Probably the best our country has ever done. Tremendous value created since the Election,” the president said in a tweet Aug. 24. “The World is respecting us again! Companies are moving back to the U.S.A.”
There are several holes in the president’s argument, not the least of which is that the economic performance of the Trump White House is no better than many of his predecessors over similar periods.
According to Dr. Robert Shapiro in an article for the Brookings Institute, Trump’s performance to date is mediocre. In fact, between July 2017 and March 2018 9 (three quarters), Trump’s economic growth trailed the Clinton, Carter, Lyndon Johnson and Kennedy White Houses at a similar point in their presidencies.
However, it is this quote that brings this entire argument to a close.
“One man does not move the market over the long term,” said Thorne Perkin, president of Papamarkou Wellner Asset Management in New York.
Indeed, he doesn’t.
Reasons Trump’s Impeachment Won’t Crash Stocks
He Could Still Remain in Office
Of the seven reasons Trump’s impeachment wouldn’t crash the markets, the president remaining in office would have to be the most ironic.
The Democrats would be seething while the Republicans would be dancing in the street. As they say, payback’s a bitch. Slick Willy was impeached and remained in office. Why should a Republican president receive different treatment?
Of course, this all depends on the reasons for impeachment. Campaign finance violations are one thing. Collusion with the Russians is entirely another.
But as I said earlier, it’s possible that the voting and weighing machines investors possess have already baked into account a Trump impeachment without removal from office.
But that’s a discussion for another day.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
