Here’s why the Trump impeachment proceedings could make a recession less likely

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Personal Investing Team

02 Oct 2019

The formal opening of an impeachment process took markets by surprise and – judging by the immediate reactions – investors had clearly decided that this was bad news.

Impeachment is in style

Impeachment talk is back in style again. Just over 20 years since the impeachment of US President Bill Clinton, the House of Representatives is pursuing an impeachment inquiry into current president, Donald Trump, following a whistle-blower’s complaint. But there’s a way that these proceedings could actually make a recession less likely.

Much like nearly everything else about the last few years, it’s about the politics. Impeachment is a political process more than a legal one and Trump enjoys a 91% approval from registered Republicans. Unless that starts to dip, it’s unlikely that there will be a two-thirds majority in the Senate that votes to convict him. But if damning new information comes to light or the proceedings begin to look bad for Trump, this makes it all the more important for Trump to deliver a political win or a major distraction. What does the biggest win look like? A trade deal with China.

Deal with China

This approach could already be on the cards – soon after the release of the memo of his call with the Ukrainian president, Trump said that a deal with China could be struck ‘sooner than you think’. Stock markets which had fallen on the news of the impeachment proceedings quickly bounced back up again on this hopeful sign. The tariffs which Trump put in place have been a dampener on investors’ returns and along with his threat to de-list Chinese companies from American stock exchanges, many people fear that this could trigger a global recession. Removing them as part of a deal would just need China’s agreement, not Congressional approval, and the economic pain the tariffs have inflicted on their economy is a strong incentive for them to agree.

Plus, the lesson we can take from the time Trump ‘renegotiated’ NAFTA (North American Free Trade Agreement) into USMCA (United States-Mexico-Canada Agreement) is that what’s in the deal doesn’t really matter so much for him than that there is one and he sell it as a success! Taking away the tariffs would be treated by the markets as a major win and have an immediate impact on the ‘doom and gloom’ feeling around recession. Economists would upgrade their outlook for economic growth and a boost to the stock market would also help his re-election chances.

Prepare don't predict

Trump can also control when the deal is announced so he can time it to deliver the greatest impact for him. According to our Multi-Asset team, this is where a ‘prepare, don’t predict’ strategy is really important for investors. A diversified portfolio can help investors from a wider range of scenarios instead of relying on just one or two predictions about the future. Trying to time the day or even month a recession might hit or that Trump will send a tweet is incredibly difficult – much better to just be prepared!

The ideas/information we provided here do not address individual requirements and therefore does not constitute any form of advice, recommendation, representation, endorsement to be relied upon to make a specific or general investment decisions.

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