Impeachment Is Just Noise to Wall Street Inured to Trump Drama

(Bloomberg) -- Just this week, Americans heard a U.S. ambassador tell Congress he was directed by Donald Trump to procure an investigation into his political rivals. Asked if diplomatic overtures to a foreign government were a quid pro quo, he testified: “Yes.” At one point a State Department official said he heard Trump “didn’t give a shit” about Ukraine.

Trump countered, pointing out that he told the ambassador he wanted “nothing,” and that the witch hunt must end “NOW.” It’s safe to say that accounts like those from Washington are gripping Main Street.

On Wall Street, the S&P 500 has moved all of 15 points, with equity volatility stuck near a two-year low. Sure, shares briefly buckled Wednesday, but on headlines having nothing to do with anyone’s impeachment.

Ask traders why nobody cares and the answers span the spectrum. Trump is winning, they’ll say, or Trump has nothing to worry about because it’s too hard to kick out a president. Behind it all is an exasperated recognition that after three years under this administration, investors have become inured. Hearing the world’s most powerful political leader being called a crook has ceased to get their blood flowing.

“Impeachment could add to a bit of volatility but there are too many other events going on right now that are taking precedence,” said Leslie Falconio, senior strategist at UBS Global Wealth. “You become accustomed to it -- Trump’s style has been absorbed by the marketplace for several years now and it’s become accustomed to that kind of movement.”

For two weeks, investors have been bombarded with news on the Trump front, just never enough to dent optimism that’s pushed the S&P 500 to record after record. Which isn’t to say interest in the hearings isn’t high. It’s one of the most asked-about topics at Baird, where financial advisers keep calling with questions, according to Willie Delwiche, an investment strategist at the firm.

“It’s a year out but we’ve got a year of election-related volatility,” Delwiche said by phone. “I don’t know that it moves the market in one direction, but it adds to the noise, adds to the volatility.”

RBC Capital Markets, too, heard from clients when the topic first gained traction -- even as most investors said the proceedings won’t have a meaningful impact on stocks. A majority of respondents in a survey by the bank this summer said impeachment is unlikely. If Trump gets impeached by the House but not convicted by the Senate, nearly 60% said it would be neutral for stocks, according to RBC. Only 7% said it would be bearish.

It doesn’t help that history offers little in the way of precedent. Stocks tanked during Richard Nixon’s early seventies Watergate scandal that eventually led to his resignation, but they soared during Bill Clinton’s impeachment proceedings in 1998. A lot depended on the state of the U.S. economy during those periods. Today, investors are more likely to focus on the data too, said Ed Campbell, portfolio manager and managing director at QMA.

“People don’t know how these things are going to turn out, but what they do know is they can look at the economic data and they do see signs that, at the very least, the global economy is bottoming,” he said by phone. “Those are tangible things the market can look at and digest.”

Should the president be removed from office, Vice President Mike Pence would take the helm, in which case the political configuration and policy decisions wouldn’t veer too far from the current state of affairs, he said.

At the center of the impeachment scandal is whether the president abused the power of his office to seek a politically motivated investigation into a rival. The House voted at the end of October to set up a formal process for public hearings. Since then, the S&P 500 has gained about 2%.

On Wednesday, the U.S. envoy to the European Union, Gordon Sondland, said Trump’s personal lawyer demanded a quid pro quo from Ukraine -- at the president’s direction -- by holding up a White House meeting unless the country’s president announced an investigation that stood to benefit Trump politically. Trump said the testimony cleared him.

There’s at least one outcome that could force markets to start reacting to the proceedings, said Baird’s Delwiche. So far, the president’s approval ratings have barely budged, with the latest Gallup poll showing a slow tick higher to 43%. But investors may start to rethink that stance should public support for Trump dip below 35%, he said. If Trump loses public support, “then impeachment becomes a real thing.”

--With assistance from Sarah Ponczek and Claire Ballentine.

To contact the reporter on this story: Vildana Hajric in New York at vhajric1@bloomberg.net

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Chris Nagi

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