It isn’t always possible to separate heat from light. Trump is a good example of the former, Indian PM Narendra Modi of the latter (more on that here). Investors seem to be preoccupied that a “Trump impeachment” will crash the US market. Should you be worried?
(more on that here)
The US market has dropped off recent highs. Many are connecting this to increasingly loud calls for Trump’s impeachment from within the establishment. This misses two key points.
1) Odds on impeachment aren’t good, if history is anything to go by. Of the two recent impeachment candidates, Nixon stepped down before the hammer fell and Clinton was acquitted by the Senate. In contrast to Trump, both faced a Congress* controlled by the other party. Republicans voting for Trump’s impeachment would be like turkeys voting for Christmas.
2) US markets are expensive. Since Trump’s election, the price of the S&P 500 has gone up almost 15% in US dollars. And the market was already expensive (more on that here). Is the recent pullback because of fears about Trump’s impeachment? Or is it just the realisation that policymaking is hard and Trump has no magic wand to revive the US economy?
It’s possible that US markets will continue sliding. Politics can drive markets from time to time. Look at Brazil in recent days (down 15% in one day).
Don’t get distracted by the headlines. The returns from the US stock market in years to come will largely be dictated by very high valuations today i.e. returns will be below average, to say the least.
Last but not least remember: where the US goes, the UK tends to follow.
ACTION FOR INVESTORS
- Don’t get distracted by headlines
- There are plenty of opportunities to be had elsewhere…
- Such as India (great opportunities but not as cheap as it was) or Frontier Markets (more here)
FURTHER READING
* The US Congress is made up of two houses: the House of Representatives and the Senate.