Investing

No, this isn't Watergate, at least from the market's perspective

Key Points
  • Impeachment talk like that surrounding President Donald Trump often generates comparisons to 1974 and the Watergate scandal.
  • However, economic and market conditions now and then are starkly different. That era featured a waning economy and market and soaring prices. Nowadays, the market and economy both are trekking higher.
  • Market strategists see little cause for concern, though stocks were slightly lower Thursday.
Would the market crash if Trump is impeached? These experts say probably not
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Would the market crash if Trump is impeached? These experts say probably not

Talk about presidential impeachment invariably leads to comparisons to the Watergate scandal, but in the most recent case there's not much similarity, at least from Wall Street's point of view.

When looking at the economic and investing environment, the two eras couldn't be more different.

In 1974, when Congress was debating President Richard Nixon's impeachment, conditions were tanking. The country was still reeling from a recession in 1973, oil prices were soaring and stocks were in a brutal bear market that saw a 14 percent drop in 1973 that would combine with a 26 percent slump the following year in the .

Contrast that with current conditions: A stock market near all-time highs, inflation still in check and an economy set to grow at least 3 percent this year.

If the adage is true that history often rhymes if it doesn't repeat, then this year is strictly free verse.

"Over the short term, markets will likely ignore political headlines in the same way they did today," Nick Colas, co-founder of DataTrek Research, said in a note. "This isn't 1974; there is plenty of positive corporate and economic news to buffer equity prices from small shocks."

Those comments echoed sentiments from Larry Kudlow, Trump's top economic advisor, who told CNBC.com on Wednesday that markets "frankly look through all these various political issues."

Indeed, the market has bounced back repeatedly from the battering of political shocks during President Donald Trump's time in office. Most recently, two Trump confidantes, Paul Manafort and Michael Cohen, found themselves in deep legal trouble, but neither piece of news caused a significant market downturn, though the major averages nudged lower Thursday.

The widening net hauling in the president's advisors could one day snare him — the PredictIt event wagering site sees a 48 percent chance of impeachment. But worries that the ongoing tumult could threaten the state of the economy or corporate America remain scant.

"Aside from a panicky drop on nasty sounding headlines (which we will tell you to buy), all this will run its course," Colas said. "Anticipated corporate earnings and interest rates drive stock prices, and nothing else."

Corporate profits have been stellar this year, with the second quarter showing a 24.6 percent gain for the S&P 500. Interest rates have caused some concern because yields have narrowed and an inversion between short- and long-term rates has been a reliable recession predictor for 50 years. However, from a historical perspective rates remain low.

Raymond James analyst Andrew Adams said he'll "really only start to worry if the market gives us a reason to worry."

That's reflected both in market action and in sentiment. This week's American Association of Individual Investors survey actually saw optimism jump, with bullishness rising to a six-week high of 38.5 percent while the bears dropped to 27.1 percent.

"Unlike back then, we still believe conditions are looking pretty good overall and that should help to continue to support the stock market if investors ever decide what is going on in Washington threatens the value of the companies they own.," Adams said in a note to clients Thursday. "While the S&P 500 has stalled around the all-time high, we are not overly concerned about it and think the index is likely just rebuilding some more energy for a move higher."