Yesterday, everybody was worried that nobody was worried anymore. Today, it seems like everybody is too worried. Traders are hitting the sell button this morning as news that fired-FBI Director James Comey wrote memos suggesting pressure from President Trump to back off the Flynn investigation. Polling suggests public support for an impeachment and now hopes for the Trump agenda of tax cuts and infrastructure is slipping away.
The Republicans control both the House and Senate, meaning the ball is in their court as to whether or not to enact an impeachment process. For the GOP Congress, this decision is a political calculation – with Trump’s approval rating sliding to historic lows, there is a growing fear of their own political futures.
An overlooked factor in Congress’ decision is the runoff election in a Republican-heavy district in Georgia where the Democratic candidate Jon Ossoff holds a slim lead against the Republican Karen Handel. If GOP members of the House start worrying that the President is jeopardizing their own careers, they will depart like rats jumping off a sinking ship (how’s that for loyalty?). This would serve to either expedite the impeachment process or a potential resignation.
In such an event, how would the market respond to a President Pence? Pence’s pro-business policies (in line with Republican orthodoxy) will not be detrimental to the stock market. In fact, a President Pence will have more political capital to follow through on the GOP’s proposed agenda. Pence won’t carry the same “resist everything” opposition as his predecessor, even when proposed policies may have widespread benefits.
In short, things might actually get done faster under a President Pence. And after an embarrassing ouster of a president in their own party, Congressional Republicans will be even more motivated to get the wheels of the economy moving again.
Right now, investors are shaking the tree and the weak hands are falling out. In the past year, the market moved higher after short bouts of selling: Brexit, Trump election, and French elections, as examples of short-term fears that propelled the market higher. The pattern has been that a selling squall opens up to brighter skies and higher prices.
Will this time be any different?