President Donald Trump may have legal headaches, but they are unlikely to stall the bull market, unless revelations from the ongoing special counsel investigation tie him directly to a Russian plot to sway the 2016 election or cause a Democratic sweep of Congress in November.
The latest developments involving two former Trump advisors, revealed to be guilty of criminal activity, initially weakened stock futures late Tuesday, but by Wednesday equities shrugged it off and were mixed. On Tuesday, one headline in particular drove down stock futures in late trading, and that involved Trump himself. His former lawyer, Michael Cohen, claimed the president instructed him to pay off porn actress Stormy Daniels, in order to influence the election.
"I think something like today's news is more of a headline event than a bottom-line event. This is not the first time we've heard about something like this or even surmised it," said Sam Stovall, chief investment strategist at CFRA. "Most investors are saying tell me something I don't know or haven't surmised."
Cohen pleaded guilty Tuesday to tax evasion, bank fraud and campaign finance violations. Also Tuesday, a jury found former Trump campaign chairman Paul Manafort guilty of tax fraud, bank fraud and failure to disclose a foreign bank account.
Strategists said so far the ties to Trump are loose and do not appear to be something he that would trigger impeachment.
"If Cohen comes up with something that really connects Trump to a crime ... it can't be just any old crime, it has be about the Russians and the election," said Matt Maley, equity strategist at Miller Tabak.
Stovall said the market was more likely focused Wednesday on the news that a trade deal with Mexico could be close at hand. While developments on the North American Free Trade Agreement were expected, the event may have been intentionally played up more by the White House, he said.
Trump's reaction
Other strategists agree that a White House strategy of deflecting from bad news is likely, though it may not always be developments the markets find to be positive.
"The biggest wild card remains the near-term reaction by President Trump. We have observed a pattern of him seeking to change the media narrative following sustained negative coverage, frequently turning to announcements related to trade fights, geopolitical tension, government shutdown threats, and immigration debates," wrote Raymond James political strategist Ed Mills.
Mills noted that Trump could either declare a trade victory or "double down on the trade war with China," or both to force a change in media coverage of the investigation.
Daniel Clifton, head of policy research at Strategas, said the president may well become more aggressive on China, as it is viewed positively by his base. He also said there's "a lot of talk about renewed interest in indexing cap gains to inflation, something the president can do unilaterally," something the market would view positively.
Strategists said barring any disclosures that implicate Trump, the more important information to the market right now is how well the economy is doing and how strong earnings will be. By some measures, the stock market Wednesday became the longest bull market ever, besting the last historic one between 1990 and 2000 by a day.
"In the first quarter, anything that posed a threat to President Trump's position was viewed pretty drastically. That's kind of been tamped down. I think people are more accustomed to this kind of business as usual. I think a lot of the risk that President Trump faces with going against a Democratically controlled Congress, that chance is pretty remote. I think that investors are weighing that perhaps the risk against the likelihood and are coming away unmoved," said Jack Ablin, chief investment officer at Cresset Wealth Management.
'Teflon' for now
Strategists say it's likely Democrats will gain control of the House, but the Senate is expected to remain in the hands of Republicans for now, and therefore Trump's economic initiatives will stay in place. The market has gained on the earnings boom created by Trump's corporate tax cut, and tax reductions for individuals are driving consumer spending, a big contributor to economic growth, at 4.1 percent last quarter.
"It's always easy to be Teflon when the economy and market is doing well," said Maley. "It's a psychological thing. If the economy holds up, he'll be able to deflect this."
Maley said he disagrees with the view that Vice President Mike Pence would easily succeed Trump, if he were ousted as a result of special counsel Robert Mueller's investigation. "That's great, but you have to get from point A to point B. Trump is not going to go down easily. He's going to drag it out. Would a Pence presidency be good? Maybe, but it would take a while to find out," he said.
There is precedent for the market to ignore a president's troubles, as it did during Bill Clinton's presidency when Congress impeached him for lying about his relationship with intern Monica Lewinsky.
"The market didn't seem to care. They were thrilled Long Term Capital Management didn't drag down the entire system," said Stovall. But when Richard Nixon was under fire for the Watergate scandal, the market and economy were in a far different place.
"We were already in a 48 percent bear market that started January 1973 and were were actually a few months away from bottoming. Nixon's resignation probably was viewed positively because it got the negative news out of the headlines," said Stovall.
But talk of impeachment may actually help Republicans like it helped Democrats in 1998 when Clinton was facing a similar situation, said Clifton. Democrats that year held on to Congress as Republicans called for impeachment, Clifton said. So far, Democrats are avoiding that talk.
"I'm not sure investors are going to care," said Bruce McCain, chief investment strategist at Key Private Bank. "A lot of the conversation this morning is surrounding the fact that what they need to impeach is not there."