U.S. stocks have sustained a strong upward momentum throughout the past several months. In spite of the impeachment inquiry from the Democratic party, Wells Fargo head of equity strategy Chris Harvey said that the stock market is expected to remain resilient.
Based on historical data, Harvey said on CNBC’s Fast Money that impeachment talks and scandals in previous administrations like Nixon and Clinton had little impact on stocks and the trend of the stock market.
“We went back and we looked at Nixon, at Clinton, and what you had back when Nixon was a bear market. That bear market continued. What you had with Clinton was a bull market and that bull market continued. That’s what we expect. We expect a repricing but that bull market to continue,” said Harvey.
The analyst indicated that considering the resilience of the U.S. stock market and the fundamentals supporting it, U.S. stocks are likely to march past major roadblocks including the trade dispute with China and the impeachment inquiry.
Why impeachment inquiry won’t affect stocks and the stock market
Strategists like Tom Block at Fundstrat Washington stated that the impeachment inquiry by the Democrats is a sideshow and the probability of U.S. President Donald Trump getting impeached is virtually nonexistent.
“I think impeachment doesn’t hurt Trump. Once the market thinks about it, it’s just a sideshow. [Senate majority leader] Mitch McConnell and his crowd would not impeach Trump,” Block told CNBC.
With impeachment widely regarded as highly unlikely by many strategists and historical data showing that impeachment proceedings have not had any major impact on the trend of stocks, the general sentiment around the stock market is anticipated to remain positive.
Having experienced instability in the energy market due to the attacks on Saudi Arabia’s oil processing plants and struggling to secure a trade deal with China, the U.S. stock market should have decreased in the past several weeks if the trend of stocks was to shift to the downtrend in the short term.
As Harvey explained, the U.S. stock market has shown strength since early 2019 and with major factors like the oil attacks and the absence of a trade deal having no noticeable impact, stocks are expected to recover swiftly if a pullback is to occur.
“This market has been very very resilient. It’s been somewhat paranoid and it’s been very skittish as of late. What have you thrown out? You’ve been throwing out interest rates potentially going down to 1 percent. You’ve thrown in a bombing in Saudi Arabia. You’ve thrown in the recession word time and time again and you have impeachment. So we should expect a little bit of repricing, but we do think that equities eventually go higher because the underlying fundamentals are still pretty good,” noted Harvey.
As previously reported by CCN, Michael Spencer of Deutsche Bank said that the bank believes the Federal Reserve will cut the benchmark interest three times by the first quarter of 2020, potentially creating a better environment for stocks to perform.
“The reality is that we have the door wide open for central banks in Asia to continue to cut interest rates and that is partly because the U.S. Fed is expected to continue to cut rates. We have three more rate cuts say February next year in our forecast,” he said.
The projected decline of the interest rate to 1 percent amidst rising optimism towards a potential partial trade deal with China could further boost stocks despite the talks around the impeachment inquiry.