- President Trump claimed that the Democrats' impeachment efforts are hurting the stock market, but strategists say that's not so.
- Strategists say more important to the market is a trade deal, and concerns that a deal with China may be elusive sparked a market sell-off Thursday.
- The impeachment would only hurt stocks if it hurts Trump's reelection bid, and particularly if either Sen. Elizabeth Warren or Sen. Bernie Sanders were to become the leading candidate on the Democratic side.
Congressional Democrats' effort to impeach President Donald Trump is not impacting the stock market as the president claimed in a tweet, but it could if it begins to hurt his reelection chances, strategists say.
Stocks would be even harder hit if either Massachusetts Sen. Elizabeth Warren or Vermont Sen. Bernie Sanders were to take a serious lead in the Democratic field against a weakened Trump. Both are seen as having less market-friendly policies than former Vice President Joe Biden, who is now leading polls, or even Pete Buttigieg, mayor of South Bend, Indiana, now fourth behind Sanders and Warren.
On Thursday, the House of Representatives approved guidelines for the impeachment process. There was no Republican support for the bill, and it is widely believed that the House will ultimately vote to impeach Trump along party lines but the GOP-controlled Senate will not vote in favor of removing him from office.
Just before the vote, Trump tweeted that the impeachment "hoax" was hurting the stock market and Democrats don't care.
Strategists say what is more important to the market is whether Trump is able to secure a trade deal with China that would stop any new tariffs from taking effect by the mid-December deadline.
Stocks sold off Thursday on worries that a deal with China would be difficult to secure, despite the administration's reassurances and Trump's comments that he would be signing a deal with Chinese President Xi Jinping. Bloomberg reported that Chinese officials have doubts they can reach a comprehensive trade deal even as they get closer to a phase one agreement. According to the report, Chinese officials have refused to move on the most difficult issues and are concerned they can't trust Trump.
"If they in fact feel they can't trust him and that he's too impetuous to stick with the deal, that's a major roadblock," said Art Cashin, director floor operations at UBS.
The question is whether Chinese officials would be even more wary of Trump if he were impeached.
"I don't think [impeachment] will have any bearing on his negotiations with China. The only way markets will care is if it impacts the 2020 election," said Peter Boockvar, chief investment officer at Bleakley Advisory Group. He added it would probably take until spring for the market to react to the election, following primaries that would clarify who the Democratic candidate would be.
Dan Clifton, head of policy research at Strategas Research, said the impeachment should not interfere with a trade deal, and he expects to see a first phase deal by the end of the year. The volatile market reaction to the escalation of tariffs in August has helped push both sides to the table.
"Since the moment that policy makers got burned by putting their hands on the stove, we have been trying to figure out how to de-escalate and create some sort of mini deal. That suggests to me that this is still on task and likely to happen," Clifton said. The timing is still unclear. "But I think we're on a path to de-escalation."
Clifton said the election has more bearing on trade talks than the impeachment. The talks have already shown some signs of being impacted by which Democratic candidate takes the lead. China may want to move faster to make a deal if Warren were leading, but if not, it may be willing to wait out Trump and see if Biden could win in 2020.
Warren is seen as negative for the stock market because many of her policies are viewed as anti-business, including her promise to end offshore oil drilling and fracking. She also is expected to be harder on banking regulations and would like to have Medicare for everyone.
The impeachment investigation focuses on whether Trump withheld aid from Ukraine in exchange for launching an investigation into Biden and his son Hunter Biden, who was involved with a Ukrainian gas company.
Clifton said if the Senate deliberates on the impeachment, it would take weeks, and that could actually help Biden and Buttigieg in early primary states, since all senators, including Warren and Sanders would be tied up in hearings.
"I don't think impeachment is hurting the stock market," said Jack Ablin, CIO at Cresset Wealth Advisors. But he said there was a spike of concern when news of a whistleblower first surfaced.
"There's essentially three levers for the stock market. There's earnings, monetary policy and then there's trade and Brexit. We've gotten the news on earnings. It was bad but better than expected. We got the news on the Fed.They lowered rates and they're going to sit tight. So now, the ball is back in his court," Ablin said of Trump. "That's why I think he's feeling a little hot under the collar."
Ablin said he expects China does have more leverage with Trump than six months ago because of the impeachment proceedings. "They're going to use it to their advantage. I doubt he's going to cave. But maybe we'll get a mini deal and see how the market reacts," he said.