It is hard for investors to separate actual from perceived threats to the market and their portfolios. Whether there is an issue with President Trump, North Korea, trade negotiations or some other risk, investors often find themselves hit with market gyrations over the short-term. It is important for people to understand that short term market impacts are not only common, but expected.
But this still leaves the question, should investors be worried about the market following the recent conviction and guilty plea by members close to President Trump? In short, not at this time. While a standing president implicated in a campaign finance crime could lead to further investigation, possible impeachment and removal from office, the likelihood of this actually happening is quite low and in the wake of this news the markets have continued to remain stable and climb. If nothing else, Trump has shown an uncanny ability to bounce back from negative news.
While President Trump said the market will crash if he is impeached, in our estimation this is an overstatement. We can expect some significant short-term volatility if an impeachment happens but believe it will be driven more by investor uncertainty left in wake of the news. Many of the Trump policies that have contributed to the post market success will still be in place and should help maintain the strong fundamental position of the economy. We would however adjust our position if President Trump was removed from office as this could cause untold political uncertainty and chaos. When President Clinton was impeached in 1998 the market continued to rise for two years until the dotcom crash that started in 2000. It is important to note here that President Clinton was not removed from office and the crash was more directly related to a gross overvaluation in tech stocks.
However, this does not mean a potential Trump impeachment is not something to pay attention to. Many participants believe the “Trump Bump” played a big role in pushing the market to its high levels today. With the current unstable political environment and late stage bull market, removing Trump from office could serve as a catalyst that drives us into an economic recession or market downturn. That said, investors really need to consider protection against a big systematic market crash which is why we always recommend using a professional that uses a diversified portfolio and other hedging techniques to protect people when they need it most.
Stephen Heitzmann is the CEO of Bauer Wealth Management LLC, an Algorithmic Virtual Advisor, based in Colorado Springs, CO. bauerwewalthmanagement.com Bauer Wealth Investing LLC is a Registered Investment Advisor (Firm CRD# 289016 / SEC#801-110892) with the Securities and Exchange Commission.
This article does not represent an investment recommendation or endorsement of any kind. Please consult with your advisor regarding your specific situation. Investing in securities does involve risk of loss that clients should be prepared to bear. The risks can range from failing to keep pace with inflation to losing some or all of the money you invest.