Looking at the action across the equity and bond markets, one would think all is generally fine and dandy over in Washington, DC.
Obviously that couldn’t be further from the truth as impeachment proceedings on President Trump entered the public domain this week. That naturally has led to a host of fiery tweets and press conferences from Trump.
But considering the possibility a sitting president could be impeached by the Nancy Pelosi-led U.S. House of Representatives, the market has remained very resilient. Consider these points:
The Dow Transportation Index — usually viewed as a proxy for the U.S. economy — has rocketed 6% in the past month, outperforming the S&P 500 (+4.2%) and Nasdaq Composite (+3.6%).
The Philadelphia Semiconductor Index is at a record.
The 10-year Treasury isn’t too far removed from the one-year lows hit in mid-September.
The VIX Index —a measure of volatility — is down at record lows.
Investor cash levels have dropped to 4.2% in November from 5% in October, according to a new Bank of America Merrill Lynch survey. It represents the biggest monthly drop since November 2016 and the lowest cash balance going back to June 2013, BAML says.
So, why is the market shrugging off the DC drama? Shouldn’t investors be hanging on every word with an eye to selling stocks? Wall Street veterans say it’s simple to understand why volatility hasn’t begun to spike: Trump is unlikely going anywhere before Election Day 2020. Combine that with a Fed that has slashed interest rates three times this year while giving a wink to markets that it could do more if need be, it’s no wonder stocks are hanging as tough as Trump.
“There is an expectation that the House is extremely likely to impeach, but the Senate is extremely unlikely to remove President Trump from office,” Raymond James policy strategist Ed Mills said on Yahoo Finance’s The First Trade. “So instead of focusing on impeachment, investors have been focused on a pretty decent earnings season. They have been focused on the Fed, which has provided additional easing. And they have been focused on the economy, which as of today is pretty good.”
Nomura strategist Lewis Alexander echoes Mill’s points. He adds that thus far, there hasn’t been any new news from the impeachment proceedings that would warrant selling stocks.
“The impeachment process is likely to attract a lot of attention over the next couple of months. However, the significance of this drama for the economy and financial markets is not obvious. The basic facts are mostly already in the public domain,” Lewis writes.
“For the general election, President Trump will likely use the impeachment inquiry as a talking point on the campaign trail as evidence that Democrats are irrationally biased against him and his agenda,” Lewis continues. “However, absent new evidence, we think it unlikely that anything revealed thus far will materially impact his standing among his supporters.”