The House of Representatives has started an impeachment inquiry into President Trump. What does that mean for investors?
First and foremost, I am politically agnostic. My sole job is to help investors achieve high risk-adjusted returns. This column is neither about politics nor about the merits of the impeachment inquiry. It is about helping investors tune out the noise and rationally think about the impact of all this on their investments.
Let’s explore the issue with the help of a chart.
Please click here for an annotated chart of S&P 500 ETF SPX.
Note the following:
• The chart is divided into three segments.
• The left-most segment is for a period when the economy was strong.
• The middle segment is for a period when the economy was slowing.
• The right-most segment is the future.
• A slow-growing economy is expected in the future.
• The chart shows two Arora buy signals.
• The chart shows two Arora signals to protect portfolios.
• The middle segment shows Trump being persistent in seeking a good trade deal with China for the long term.
• The right-most segment shows the future period when Trump will have a strong incentive to strike a weak deal with China before the election.
• The relative strength index (RSI) on the chart shows that the market can go either way from here.
The foregoing sets the scene for which investors ought to consider the following five key points:
• The most important point is that, previously, when the stock market was in the left-most and middle segments, it was resilient to the Mueller investigation and other political developments. However, during that time, the economy was strong. Now the economy is slowing. For this reason, there is the potential that at this time the stock market may not be as resilient. In the future, the economy may slow even further. As a result, the stock market may be even more vulnerable to an impeachment inquiry or other similar political maneuvers. This is a potential negative.
• The second most important point is that the impeachment inquiry may give Trump an incentive to strike a not-so-good trade deal with China. This is a potential positive in the short term for the stock market but negative in the long term.
• You will hear a lot of statistics about the Clinton impeachment and the stock market. Consider not wasting your time and energy on such statistics. The world, the economy and the stock market conditions are very different now compared with the Clinton era….Read more at MarketWatch.
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