President Donald Trump went berserk on the first day of United States House Democrats’ impeachment proceedings. Trump released a storm of 34 tweets and retweets to defend himself against the Democrats’ assault against his presidency.
The stock market was largely unconcerned by the political drama. Both the S&P 500 and the Dow Jones have managed to post six consecutive green candles as the Democrats went on the offensive. This is an indication that investors are confident that the impeachment hearings won’t unravel into a full-on political upheaval.
While most investors feel comfortable, one portfolio manager thinks that the impeachment is a potential catalyst for a market downturn.
The markets are ignoring the impeachment proceedings because investors probably know that they pose very little threat. After all, the Senate is dominated by the Republicans and it is unthinkable that they’ll turn their backs on Trump.
This is mostly the sentiment that I received after asking for the opinion of market experts on the matter. For instance, Lawrence Lepard, an investment manager, said,
My read is that while [Donald Trump] may be impeached in the House the Senate will never confirm. So all this is just a lot of noise.
Top economist Alex Kruger shares the same view. He told CCN.com,
It’s noise in my humble opinion.
Trader JM Vala als doubts that the impeachment will get serious. He said,
The only way we see something outside the standard ranges is if somehow the Republican- controlled Senate decides to play against their own party, which, I don’t foresee.
Clement Thibault, analyst at Investing.com, thinks that the impeachment is already priced in. He said,
We’re in an election year and political uncertainty is already playing its role, so I expect the stock market to have a less severe reaction than we would’ve seen otherwise.
It’s noise has little to no effect on the market.
Sometimes, when everyone follows the same line of thinking, it’s wise to consider the other end of the spectrum. Sure, the market looks cozy now but according to Otavio Costa, a portfolio manager at Crescat Capital, the impeachment adds a layer of risk. He told CCN.com,
From an investment perspective, a presidential impeachment is yet another potential trigger for a long-due downturn in the business cycle.
Mr. Costa has been seeing signs that the S&P 500 is ripe for a downturn. The impeachment just might tip the scale. The portfolio manager continued,
Markets can only ignore macro and fundamental indicators for so long, and this political drama just adds a new level of risk to an already fragile economic environment.
It’s not just the impeachment that can spark a waterfall event. Mr. Costa also sees very little reason for the bull market to continue. He added,
It’s becoming increasingly harder to rationalize the bullish thesis when almost every investable asset yields less than inflation today. Also, corporate earnings are now contracting while equity valuations remain near record levels.
When you put all of these factors together, there’s a possibility that the market might give out. Otavio Costa further said:
At some point, these imbalances are going to matter.
Thus, the markets may consider the impeachment hearings as noise for now. If the political drama escalates, however, it might just start a sequence of events that can ignite a trend reversal. It’s hard to be bullish when there are multiple fundamental factors working against the financial markets.
Last modified: September 23, 2020 1:16 PM