"An impeachment proceeding would blow the market away," Welch said on "Squawk Box."
Welch also said Trump's firing of James Comey as FBI director was a "rookie mistake." He added, "You don't make any friends doing it the way [Trump] did it."
"I think without question we have a guy that's on the right agenda with crappy management practices," Welch said, giving the president a "D minus" on his management skills.
Trump needs to unite all the different factions in the White House, get to the bottom of the media leaks, and get back to his message of "Make America Great Again," he added.
While no fan Barack Obama's policies, Welch said the former president ran a tight ship. "They spoke with one voice."
The botched Comey firing is an example of Trump's inexperience in running a bureaucracy, the executive chairman of Jack Welch Management Institute said.
Welch said Trump painted himself into a corner on Comey because he praised the former FBI director when he kept Comey over from the Obama administration.
The president should have loved Comey "on the way out" as much as "he loved him on the way in," Welch said, instead of calling the former FBI director incompetent.
Welch declined to comment directly on reports late Tuesday that Trump allegedly asked former Comey to "let go" of the investigation into former national security adviser Michael Flynn.
The latest Trump crisis put some pressure on U.S. stock futures early Wednesday. The dollar index hit lows not seen since early November. Gold rose to two-week highs, while U.S. bond yields sank to two-week lows.
However, the S&P 500 and Nasdaq closed at record highs earlier this week, and they're both up strongly since Trump won the election. The Dow Jones industrial average also remains sharply higher since the election, and less than 1 percent away from a record as of Tuesday's close.
Welch said he'd also give Trump an "A" for boosting morale among business owners and consumers. "There's an air of confidence," he said, advising the president to stay on message. "Stay on jobs. Stay on health care. Stay on tax reform."
In addition to hopes for tax cuts and deregulation, the stock market has also been benefiting from "a global synchronicity," Welch said, pointing out that the economies of Europe, Japan, and China are all doing better.