I’m not a political writer and I don’t want to be one. However, there are times when politics can interfere with the markets. Furthermore, when I have two clients approach me with questions such as…
“How will this new investigation into Trump affect the stock market?”
“What would happen to the market if Trump were impeached?”
…I feel a certain responsibility to weigh in with a few unbiased, objective thoughts.
First, let’s summarize what’s going on. There are technically five investigations taking place, four of which are being implemented by politicians and one criminal investigation. Here are the main issues being investigated, overall:
- Did Russia play a part in the election?
- Did the Trump campaign play a part in it?
- If the Trump campaign played in a part in it, are Trump and the Republican party attempting to cover it up?
Did Russia play a part in the election?
It has been widely reported that multiple intelligence agencies believe Moscow hackers infiltrated democratic servers and leaked emails to WikiLeaks.
In fact, President Trump went on record saying that he believes the U.S. was in fact hacked by Russia and also by other countries. Russian president, Vladimir Putin, then went on to blatantly deny the claim in a face-to-face meeting with Trump.
Looking at #1 above, it’s hard to say whether or not there were any valid accusations that the republican campaign was involved.
But did the Trump campaign play a part in it?
Recently, Donald Trump Jr.’s emails back and forth with a Russian lawyer were uncovered in which the lawyer promised “dirt” on Hillary Clinton during the Presidential campaign.
A meeting took place thereafter at which the lawyer referenced in the emails, Jared Kuschner (Sr. Advisor to the President), Paul Manifort (Trump campaign manager at the time), and Donald Trump Jr. were all present. Trump Jr. went on record saying that he did attend the meeting, wanted to hear what the attorney had to say, and also went on to say that communication such as this happens regularly during a campaign and emails come from many different sources.
Now that we’ve come this far, was there any collusion with the Russians? It’s hard to say and there is certainly no proof. Donald Trump Jr. said that nothing came from the meeting. This is why some have gone on to say that the meeting itself established “intent to collude” with the Russians and that doing so may be illegal.
Was there any obstruction of justice?
Did Trump try to cover anything up? Was former FBI Director, James Comey, fired because he was looking into the campaign’s potential ties with Russia?
Was Comey told by Trump to let go of the alleged investigation into Michael Flynn (the former national security advisor who resigned following reporting on his communicating with the Russian ambassador, Sergey Kislyak)?
No one knows the answers to these questions yet. Enter the new investigation, stage-left. But how could all this affect the markets?
Thanks to some help from The Stock Trader’s Almanac, you can see the market’s reaction to the Watergate scandal and President Nixon’s eventual resignation. Notice the time that passes (each candlestick represents one week):
Now look (below) at the market’s reaction to the Bill Clinton sex scandal (again, each candlestick represents one week):
Finally, look at the chart below to see where the market sits this summer in the midst of the very beginning of the Trump investigation:
Looking at all three of the above scenarios in totality, it’s easy to conclude that, if the investigation does turn into something that leads to an eventual resignation or impeachment, it will likely take time before we see any resolution or reaction, for that matter.
In addition, it’s interesting to see that the Nixon investigation led to a large decline in the stock market while the Clinton scandal passed and the markets continued higher. This just goes to show how unreliable news is. You never quite know how people (i.e. – investors) will react to news – whether they’ll choose to click “buy” or “sell.”
Thankfully, at our office, we don’t invest our clients’ money based on this investigation, Apple’s earnings (good or bad), an upcoming Federal Reserve meeting, or any apocalypse du jour.
Rather, we take a “weight of the evidence” approach to investing, primarily observing the irrefutable forces of supply (selling) and demand (buying) – which have always been, and always will be main drivers in the market. Said another way, if there is more buying enthusiasm than selling enthusiasm, prices must rise and we want to be in the market. Conversely, if there is more selling enthusiasm than buying enthusiasm, prices must fall and we want to put the defense on the field and protect our nest eggs.
While this may sound simple, planning a successful retirement can be complicated, confusing, and stressful. This is why it is critically important to first, have a comprehensive, written financial plan before you invest a dime of your money into the markets. Secondly, you need to ensure your hard-earned retirement savings is being prudently managed and watched every single day, looking for changes in the trend of the forces of supply and demand.
If you have any questions about retirement or estate planning, the market, or our patented Defense FirstTM portfolio management strategy, please reach out. You don’t have to be a client to ask a question!
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