If President Donald Trump were impeached, the stock market could be slammed in the short term, but the economy is unlikely to see any serious damage, according to Strategas Research.
Trump this week claimed the stock market would crash and "everybody would be very poor" if he were to be impeached.
Strategas said if Democrats win the House in November, an impeachment effort is likely. "That clearly would present a risk to the market in the immediate aftermath of the midterms. In any case, in the event of impeachment or resignation, there is no evidence to suggest that a President Pence would have a dramatically different approach to economic affairs," Jason Trennert, Strategas CEO, wrote in a note.
Trump made the comment on Fox News Thursday. "If I ever got impeached, I think the market would crash. I think everybody would be very poor," the president said.
Trennert wrote, "We believe this would ultimately have little impact on monetary, fiscal, regulatory, or trade policies in the long-term but could have a meaningful, if short-term, impact on market returns."
Trennert also said there is little chance Trump's tax policy could be changed before the next presidential election. A number of strategists have said for now, they do not expect much market reaction unless it appears Trump did collude with Russia or the investigation into his campaign causes a sweep by Democrats in the November midterm elections.
"We do not want to make light of the current controversies surrounding the Administration, but we believe investors would be best served to watch business and consumer confidence closely to determine whether the circus in Washington is likely to have any lasting financial impact on the country. If the President was forced from office for reasons that, in today's world, were seen as almost cliché and politically motivated to boot, the impact on the social fabric might wind up being far harder to mend than a market correction," Trennert wrote.
Trennert said he's surprised there was such little market impact from this week's events, which include a jury finding former campaign chairman Paul Manafort guilty and a guilty plea by Trump's former lawyer Michael Cohen. He said investors seem to be more concerned about policy than politics.
"History would suggest that, if worse came to worst and the country was unable to spare itself the spectacle of impeachment proceedings, the long-term impact on the economy would be relatively small. The short-term impact on the market, however, could be meaningful," he wrote.
He cited the examples of President Richard Nixon and President William Clinton. The anticipation of impeachment was worse for markets than the actual events.
"Stocks came under great pressure after President Nixon fired Watergate special prosecutor Archibald Cox in October 1973, but it is important to remember that this was in the context of a secular bear market. The prior peak in the S&P 500 occurred in 1966," he wrote.
Trennert said by the time it got to Nixon's impeachment, the markets had already dealt with the Arab-Israeli conflict, the spike in oil prices followed by a big jump in inflation, and the collapse of the Nifty Fifty stocks. The stock market came under even more pressure when the House began impeachment proceedings.
Special prosecutor Ken Starr's investigation of Clinton had little lasting impact on the market or the economy. The S&P fell nearly 20 percent in the six weeks leading up to the release of the Starr Report, but it rose 28 percent from the time the House started impeachment proceedings on Oct. 8, 1998 to February 1999, when the Senate acquitted the former president.
"Ultimately, the public decided that President Clinton's behavior, while unseemly, did not really rise to the level of 'high crimes and misdemeanors' and economic life returned, more or less, to normal," Trennert wrote.
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