As political uncertainty continues to mount, some strategists fear intensifying D.C. drama could further push out a tax reform package and roil markets.
Following Monday's disclosure that two former Trump campaign officials were indicted as part of Special Counsel Robert Mueller's investigation, continued political turmoil could have a potential "long-term and very negative impact on capital markets," said strategist Boris Schlossberg.
"The critical question going forward is whether this is just a one-and-done, or whether it's just the beginning of a very long and perhaps a very, very tedious judicial process that could really weigh both on Washington and Wall Street as we go forward," Schlossberg, managing director of foreign exchange strategy at BK Asset Management, said Monday on CNBC's "Trading Nation."
These questions come as economic data have been "superb," Schlossberg said. Specifically, he pointed to the latest consumer spending data, which reflected the largest monthly gain since 2009 (likely affected by spending related to recent hurricane devastation), and personal income, which also rose month-over-month.
Still, "markets are very concerned, because the big catalyst going forward is tax reform. That's what the market is looking for as the next jump-start to get the economy going to the next level," he said.
Should the administration's agenda stall further, "that could weigh very badly on the market," he said.
According to a Bloomberg News report on Monday, Republicans are considering "gradually" lowering the corporate tax rate, and markets had a relatively muted response.
Furthermore, the market is also ripe for some kind of pullback, Schlossberg said, which gives him an overall cautious view heading into the rest of the year.
Others are less concerned about the probability that Mueller's investigation into Russian attempts to interfere in the 2016 U.S. presidential election could weigh meaningfully on equities.
"There is some trepidation on the Mueller indictments but we are starting to see Trump as teflon, so much so that we think he can 'get away with' firing Mueller and markets would actually take that well as it would remove an overhang. Cries for impeachment remain far fetched whether we like that emotionally or not," Michael Block, chief strategist at Rhino Trading Partners, wrote Monday in a note to clients.
Block added: "And the crazy thing is, if Trump does fire Mueller, it's probably bullish for stocks. It would show that this guy can do anything he wants including shove pro business legislation down everyone's throat. I'm not happy about this kind of power even if I like what's good for stocks, but that's my honest read."
U.S. markets closed lower on Monday.
