Why Wall Street is shrugging off a possible Trump impeachment

Alexis Christoforous

You can add impeachment proceedings to the growing list of uncertainties for investors, and we all know how much the markets detest uncertainty.

U.S. stocks initially reversed an early rally Tuesday and sold off on news of the pending impeachment announcement from House Speaker Nancy Pelosi, but after investors had a night to sleep on it, they bid stocks higher the very next day.

In fact, all three major stock indexes rose Wednesday, with the Dow closing more than 150 points higher.

“I just don’t think it’s an event for the markets,” David Waddell, chief investment strategist at Waddell Associates, tells Yahoo Finance’s “The First Trade.”

“It’s another vaudeville act in the political circus and the markets build up some callouses around this,” says Waddell.

Market watchers say the sheer shock value of the impeachment news just isn’t there. “I think if this came out of nowhere, and we didn’t have the past two to three years of political theater, this would really be throwing markets off,” says Shawn Cruz, manager of trade strategy at TD Ameritrade.

Gridlock coming

One thing investors do appear to be certain about – now that lawmakers are focused on impeachment proceedings – is that little else will be accomplished in Congress.

“If nothing else it creates gridlock, which could actually be good for some sectors,” says Cruz. “Think about health care, right now they don’t want any progress made on the legislative front for them.”

Cruz says traders will likely favor defensive stocks in the short term, and shun riskier trades that are more sensitive to geopolitical uncertainty.

The impeachment news doesn’t change the investment narrative for JP Morgan analyst John Normand.

“There is no change to overall investment recommendations, which are only moderately cyclical given previous geopolitical and now political constraints on the business and profit cycles,” Normand wrote in a note.

FILE - In this June 29, 2019, file photo, President Donald Trump, left, meets with Chinese President Xi Jinping during a meeting on the sidelines of the G-20 summit in Osaka, Japan. China has announced it will raise tariffs on $75 billion of U.S. products in retaliation for President Donald Trump's planned Sept. 1 duty increase in a war over trade and technology policy. (AP Photo/Susan Walsh, File)
In this June 29, 2019, file photo, President Donald Trump, left, meets with Chinese President Xi Jinping during a meeting on the sidelines of the G-20 summit in Osaka, Japan. (AP Photo/Susan Walsh, File)

Effect on trade

For some on Wall Street, the impeachment inquiry only matters in terms of how it affects trade talks with China.

“If the perception is that Trump really does have a weaker hand, then it becomes more of a photo-op agreement and less a fundamental agreement,” Waddell says.

Investors are also betting on the impeachment process taking months to unfold, and that the odds of it passing a Republican-held Senate are slim.

The two prior times Congress brought impeachment proceedings against a president, market reaction was very different. Experts are quick to point out that may be because their economic backdrops were also very different.

“During the Nixon saga, stocks were already tumbling (of course, we were going into recession) and kept falling after the formal inquiry process started,” Neil Dutta, Renaissance Macro Research head of economics, wrote in an email.

“During the Clinton impeachment process, markets exploded to the upside as the economy boomed,” he said. “Perhaps these political events are eventually overwhelmed by the fundamentals?”

Alexis Christoforous is co-anchor of Yahoo Finance’s “The First Trade.” Follow her on Twitter @AlexisTVNews.