Thursday, December 19, 2019
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Impeachment was never an economic issue
The President of the United States was impeached by the House of Representatives on Wednesday.
The Nasdaq also hit a record high for the sixth straight day on Wednesday; the S&P 500 closed 0.04% away from completing its own six-day record streak.
Back in September, Sam Ro highlighted work showing that during Watergate and the Lewinsky scandal, the stock market was much more reactive to economic conditions than political scandals.
In October, I noted in this space that trade was the clear marginal bid in the market, with impeachment a non-economic sideshow being ignored by consumers and investors alike.
On Wednesday, then, it seems we found out what we already knew.
One of the most interesting financial market themes that has emerged during the Trump era is the role politics tend to both play and not play. In the real world of concerned citizens who don’t necessarily follow stock prices, politics is now sports. The “who is winning” horserace has made pundits out of all of us.
On this background, it might be odd to see significant political developments registering as afterthoughts among the professional investor class. But if we think about what Donald Trump has meant to this class, however, it shouldn’t be a surprise that the president has gotten — and continues to get — the benefit of the doubt.
The post-election rally that continued through 2017 was premised on the belief that tax cuts, a big defense spending bill, and infrastructure spending would boost the business sector. Two of these themes worked. Returns were stellar.
This year, belief that the Federal Reserve — much-maligned by the president — would see the error of their ways and that Trump would avoid a worst-case scenario in his trade spat with China and other major partners. These themes mostly worked. Returns have been stellar.
If the early part of the 2010s saw investors bet on central bankers to eventually do the right thing for the market, then the latter part of this decade has seen investors bet on Trump to do the same.
Both views were rewarded handsomely.
In a note to clients published Wednesday, Lori Calvasina and the equity strategy team at RBC Capital Markets published the results from their latest investor survey. Among the questions the firm asked of investors was their view on how impeachment would impact markets.
The results were clear.
“A sizable majority of the investors who participated in our December 2019 survey believe that a Trump impeachment by the House (without conviction in the Senate) would be a neutral event for markets (74%),” the firm said.
“This was up sharply from 57% in June 2019 (the last time we asked this question, when the Mueller investigation was in the spotlight) and 50% in September 2018 (the first time we asked this question).”
And so in the last 15 months, investor indifference towards impeachment increased about 50%.
The view that impeachment could be a negative event dropped sharply, with just 3% of investors saying impeachment would be negative for markets. This is down from just under 50% of investors saying impeachment would be bearish in September 2018.
“We didn’t explore the reasons for this shift in our survey,” RBC adds, “but suspect it could be due to the view that the impeachment process isn’t hurting Trump’s chances for re-election.”
And why wouldn’t investors want that?
What to watch today
8:30 a.m. ET: Philadelphia Fed Business Outlook, December (8.0 expected, 10.4 in November)
8:30 a.m. ET: Initial jobless claims, week ended December 14 (225,000 expected, 252,00 prior week)
8:30 a.m. ET: Continuing jobless claims, week ended December 7 (1.676 million expected, 1.667 prior week)
10 a.m. ET: Conference Board Leading Index, November (0.1% expected, -0.1% in October)
10 a.m. ET: Existing home sales, November (5.44 million expected, 5.46 million in October)
7:30 a.m. ET: Conagra (CAG) is expected to report adjusted earnings of 57 cents per share on revenue of $2.8 billion
Darden Restaurants (DRI) is expected to report adjusted earnings of $1.07 per share on revenue of $2.06 billion
Rite Aid (RAD) is expected to report adjusted earnings of 10 cents per share on revenue of $5.4 billion
4:15 p.m.: Nike (NKE) is expected to report adjusted earnings of 58 cents per share on revenue of $10.08 billion
From Yahoo Finance
This week’s Influencers with Andy Serwer, features civil rights activist, DeRay McKesson. Tune in at 5 p.m ET or 8 p.m. ET.
Probe launched into hedge funds hijacking Bank of England audio [Yahoo Finance UK]