The ongoing Robert Mueller Investigation recently took another unexpected turn which may begin having repercussions on the U.S. stock market.
The investigation looks to find out if or to what extent the Russian government interfered with the 2016 Presidential Election which resulted in the election of President Donald Trump.
The investigation, which has been going on over year and has resulted in several convictions and jail sentences, recently saw the forced resignation of Attorney General Jeff Sessions who was replaced by Trump’s own chief of staff Matthew Whitaker. Whitaker, who has a history opposing the investigation, will now have authority over the special counsel investigation.
It can be challenging to understand how a political storm may affect the economy and specifically stocks and bonds, but as the investigation moves closer to the President it is likely that the press coverage will negatively impact consumers confidence in the market. An increase in political resignations and political discourse is reflected by consumers in a decrease in spending.
Waning confidence can continue to spread and result in a bare market where consumers are reluctant to spend money and engage with purchasing, slowing economic activity. This can be especially concerning as changes in the investigation continue as we get closer to the holiday seasons and some of the biggest shopping and sales events of the year.
During the Watergate scandal during President Richard Nixon’s time in office, the markets dropped nearly 30%. The markets trended downward until the Watergate scandal settled down following the resignation of President Nixon.
Looking at individual stock reports from the month of October, it appears that consumers may already be facing confidence tests possibly because of the ongoing investigation about the probable relation between Present Trump’s election and Russian officials.
Economists have concerns about the continued decline in market activity should the special counsel investigation issue any more indictments close to the President and how those indictments may cause an event risk in the market. Event risks are the risks associated with an unforeseen event occurring that may negatively impact a company or industry’s market security. Events like massive storms or the terrorist attacks on 9/11 negatively impacted the national economy due to the amplitude and disruption caused by the events.
When Mueller was appointed to lead to the special counsel investigation, he was given the authority to prosecute any crimes the investigation may uncover. Already, the President’s former campaign chairman Manafort as well as chairman Gates were indicted for several conspiracy charges, tax evasion and fraud charges.
Later, the Trump administration’s former national security adviser, Michael Flynn, faced charges along with George Papadopoulos, a foreign policy adviser during Trump’s presidential campaign. Among several others already facing charges or under heavy investigation by the counsel, it is expected that more arrests and sentences could follow as the investigation continues.
If the national scandal of Watergate during the Nixon administration reflected anything, it is that political upheaval will negatively impact the economy. This could be potentially bad news for major companies and stockholders who may be anticipating increased profits from the upcoming holiday season.
Since we don’t know when Mueller will release his findings, it is important that we understand this can have a major impact on markets and that we should make sure our portfolios are prepared for any major dip just in case it does negatively effect the markets.
Only time will reveal both the results of the continued investigation as well as whatever the economic impact of the investigation may be though downward trending can already be seen in major stocks.