by The Gould Asset Management Team
The guilty plea Tuesday by President Trump’s former lawyer, Michael Cohen, and the near simultaneous felony convictions of former Trump campaign manager Paul Manafort have unquestionably increased both the political and legal risks now facing the President. A number of clients have asked for our thoughts on how an impeachment and the possible removal from office of the President might affect the stock market.
First, we should acknowledge that this is a fast-developing story, with new information coming at us daily. Consequently, no one can predict with too much confidence how this will ultimately play out. Here we will simply assume what is implied by the question—a worst-case outcome for President Trump—and examine the potential implications for the market.
Bottom line: we don’t think stock markets would have a large reaction to President Trump’s removal from office. It can be argued that the market has already received most of what it wanted from a Trump administration—corporate tax cuts, rolled back regulations, and a rightward push within the judiciary.[1] Assuming Vice President Pence replaces President Trump, we would not expect any of these initiatives to be unwound.
It is always next to impossible to determine how much of an economy’s or a stock market’s success is attributable to the current President. All Presidents like to take credit for good news, while blaming bad news on their predecessors and/or opponents. That’s politics. President Trump yesterday asserted that the stock market would crash if he were impeached, which is another way of taking credit for the market’s run-up over the past 21 months.
Our view is that regardless of how much or little credit one wishes to give the President for the post-election stock market boom, the market is not likely to crash solely as a result of his departure. Of course, the market could crash for other reasons or even no reason at all—it does that from time to time—but we do not see an elevated risk of that at present, nor do we see President Trump’s impeachment or removal from office as materially changing those odds.[2]
While political instability often feeds market instability, our guess is that such side effects would be short-lived. We note that the US market’s initial reaction to the Cohen/Manafort cases was quite muted, while today it is up more than a half percent, both of which are consistent with our view that the stock market will not be much affected, however this plays out.
The political pot may be heating up, but our counsel is not to let it distract you from a thoughtfully considered long-term investment plan.
The Gould Asset Management Team
[1] It could even be said that markets are now getting more than they want from President Trump, for example, immigration restrictions and threats of a trade war.
[2] Our one caveat to this view relates to the extreme political polarization in the US today. Nothing might be so nationally divisive as an impeachment and the forced removal from office of President Trump. We cannot rule out the possibility of social unrest in that event, and we will monitor developments closely for this and many other reasons.