“Yesterday…all my troubles seemed so far away…now it looks as though they’re here to stay…so now I long for yesterday…”
These slightly altered classic Beatles lyrics might just be today’s theme song for the White House. President Trump is now faced with perhaps the most difficult trial of his tumultuous career. The transcript of his phone call with the President of Ukraine is troubling on a number of levels. The storage of this conversation (and presumably many others of similar ilk) on a separate server ordinarily reserved for highly classified data strikes a parallel with Watergate except with more advanced technology. The House inquiry into Trump’s possible impeachment looks to be the dominant news story for weeks to come.
My role as an investment commentator does indeed need to be concerned with politics from time to time. The boundaries between economics and politics are not always clearly delineated. What happens on the domestic and world stages can have an enormous effect on investor confidence. Let’s examine the early reaction from Wall Street to this bombshell within the news cycle.
One would think that in the wake of this inquiry that Wall Street would react with significant volatility. After all, we’re talking about the potential ouster of the President of the most powerful country in the world. However, reaction in virtually all sectors of the market has been tepid at best. Why?
There are several potential reasons to ponder:
1.) Many of us are fatigued by the almost daily travails of the President, and this storyline is not that much different from the Mueller probe.
2.) House Democrats will not present the case for impeachment in a way that changes enough people’s minds about the threat to our elections and national security that this whistle-blower complaint has outlined.
3.) President Trump will not be impeached due to the Republican Senate holding its ground of support.
4.) Even if he were to leave office, Wall Street is confident that the economics of new President Pence would be similar to those of his predecessor.
5.) Washington will remain in gridlock until the 2020 election, and so little if any important economic legislation will be passed in the interim.
I’m of the opinion that this story has legs if nothing else. Wall Street has done an excellent job of divorcing itself from the controversy thus far, but further volatility may lie ahead. We’ll have to wait and see what transpires.
September ended the third quarter with a bit of a whimper. Equities have been moving sideways for a while now, and that’s actually a positive sign. In the first place, this type of action is generally seen as a consolidation of gains that have been previously achieved. Secondly, stocks have held up remarkably well in the face of plenty of potentially negative news. There’s seemingly a lot to panic about (threat of recession, Iran, upcoming election, trade war, climate change, impeachment inquiry), but Wall Street has thus far refused to succumb to the anxious atmosphere. Fixed income has stabilized, as has the price of gold.
I wrote last month that I’m cautiously optimistic until the election. I maintain that the most critical element for Republican success for both the Presidency and Congress is a healthy stock market. Despite the deep divides and rancor that epitomize this administration, most folks are happy with the progress of their portfolios. The old adage of people “voting with their wallets” might hold true again in 2020. If it does, everything else might simply be background noise.
In the meantime, I’m sure that President Trump is longing for yesterday. He’s certainly a competitor, and will fight this new charge in the only way he knows how. I’m confident that there will be even more rallies to bolster his base. His rhetoric will remain true to this style – take no prisoners and scorch the earth. What will happen on the impeachment front is anybody’s guess at this juncture. How Wall Street might react as the circus proceeds is also up for grabs.
Kelley, RC, Christie, and I will continue to monitor your holdings. If you would like to talk about things, please send us an e-mail or give us a call. Our team is here to help guide you through these interesting times. Thanks as always for your trust and support. We look forward to hearing from you soon.
|The opinions expressed in this letter are those of William Schiffman and should not be construed as specific investment advice. All information is believed to be from reliable sources; however, no representation is made to its completeness or accuracy. All economic and performance information is historical and not indicative of future results. Diversification cannot assure a profit or guarantee against a loss. The S&P 500 Index is a broad based unmanaged index of 500 stocks, which is widely recognized as representative of the equity market in general. Indices are unmanaged and do not incur fees. One cannot directly invest in an index.|
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