The Possibility of Trump’s Impeachment Has Increased the Risk of a Stock Market Crash in 2017
Not since Watergate and “Monicagate” has America been so distracted in front of the TV for hours to witness a government insider give testimony. Former FBI director James Comey, infamously fired by President Donald Trump on May 9, 2017, has yet to provide clear evidence as to whether Trump was guilty of obstruction of justice or that, indeed, Russia colluded in the 2016 U.S. election. But, should the ongoing hearing and investigation produce such evidence, there could be a major stock market crash in 2017.
In American history, two presidents have been impeached: Bill Clinton (1998) and Andrew Johnson (1868). Contrary to popular belief, Richard Nixon resigned before Congress had a chance to vote for impeachment. Because the markets have held out such expectations on the basis of Trump’s pro-business and pro-wealth tax reforms, Trump’s impeachment would have the greatest effect. Trump and Comey together (“Russiagate”) are the potential black swan that could spark the next financial collapse.
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Fasten your seat belts, because it’s going to be a rough ride. Former General Electric Company (NYSE:GE) CEO, Jack Welch, now executive director of the Jack Welch Management Institute, predicts that if the Comey investigation ends up “graduating” to impeachment hearings, it would “blow the markets away.” (Source: “Jack Welch: Impeachment of Trump would ‘blow the market away,” CNBC, May 17, 2017.)
Is the Russigate investigation the black swan that markets feared? It might still be too soon to say, after all, black swans are not recognized until after the fact. But, there’s no question that despite the Dow Jones continuing to hold out above 21,000 points, there are concerns. The market could be heading towards a stock market crash in 2017.
Optimism in the Markets Is Over
The optimism that investors have been experiencing over the past few months is waning. The markets even got a rare boost from Europe. The populists, who threatened to beat the established mainstream parties have lost some key elections this year—Holland and France, for starters. But, the British election, with Theresa May securing at best a Pyrrhic victory, has infused the U.K. markets with instability.
The combined effect of the Comey/Russiagate investigation and the weak British electoral result have made pessimism and financial collapse thoughts fashionable again. The combined effect could paralyze the financial markets and force a crash. Both the U.S. dollar and the British pound have hit the lowest levels since November 2016.
In addition, the Asian and European stock exchanges always sneeze when Wall Street catches a cold. Quite apart from the Russiagate investigation, the financial markets are floating off into a world of their own, unrelated to the real economy.
That’s why investors should start worrying about a potential market correction, if not a financial crash in 2017. Stocks have simply reached stratospheric valuations. The next market correction could hit the whole world, dampening any chance of real economic recovery in 2017.
What’s keeping the markets afloat, staving off a financial crash, is that so far Comey has misfired. It seemed as if he had the proverbial smoking gun. But, he has not been able to offer evidence to determine whether Trump is responsible. Then again, the Democrats—and many Republicans, for that matter—seem eager to push Russiagate as far as it can go.
The question is whether the markets can withstand growing uncertainty. Financial collapse seems just around the corner. The only certainty is that Trump and his administration are in trouble and that Russiagate continues. Getting to Trump might be easier than it seems. The president is facing an increasingly vulnerable position. If the markets don’t like Mike Pence, impeachment will cause political turmoil in Washington and across the Atlantic. A financial crash is the least that can be expected.
The markets, if not necessarily the real economy, have performed because of Trump’s promised tax cuts. But, GDP growth of 1.7% remains well below expectations of three percent. Thus, the markets are being fueled by pure speculation and expectation. All it takes is one tiny pin to burst the illusion of growth and prosperity that Trump has encouraged.
The pin that could cause a financial crisis in 2017 has arrived. It’s in the form of President Trump demanding James Comey to close the file on former security advisor Michael Flynn. The New York Times wants to drive this narrative all the way to a market crash. It says that if the indiscretion were confirmed, it would be obvious proof that the president tried to exert his influence on the Justice Department and the FBI. (Source: “Comey Memo Says Trump Asked Him to End Flynn Investigation,” The New York Times, May 16, 2017.)
Certainty, one of the pillars of the market optimism that Trump inaugurated would collapse. At least, before the Comey mess, investors had some hope. They hoped that Trump would have the ability to carry out his big tax reform and bring home the promised infrastructure investments. These are the elements that have propelled the S&P 500 and the Nasdaq, propelling them to new historical records.
Now, the uncertainty will drive shareholders to put on the brakes. The political uncertainty surrounding Trump has given them a big reason to move their positions to cash, gold, and/or both.
