Market Comment – Equity markets not too worried about Trump’s legal woes

News item -

Legal issues are piling up for US President Donald Trump. It is difficult to estimate how severe the political fall-out of these legal woes will be for the Trump White House. Talks about impeachment of the US president, however, are premature. Equity investors are focussing on the strength of the US economy instead. ABN AMRO continues to favour US equities over European equities.

On Tuesday, Paul Manafort, Trump's former campaign manager was convicted on several charges of tax evasion and bank fraud. On the very same day, Trump's long-time lawyer Michael Cohen pleaded guilty of breaking campaign-financing rules, implicating that Donald Trump himself had committed illegal acts as well.

With two of Trump's former aids facing jail time and one of them admitting that illegal payments were made at the direction of Trump himself, speculations about impeachment proceedings against the US president have resurfaced. However, we consider these speculations to be premature. Recent developments clearly represent a political setback for a White House mired in legal battles. But for impeachment proceedings to be initiated, it requires backing by a majority of the US House of Representatives. For now, the Republican Party still dominates the House of Representatives, which makes it unlikely that an impeachment process would start anytime soon. 

This might explain why equity markets had only a muted response to the news around Trump's troubled former aides. Paul van Doorn, equity portfolio manager at ABN AMRO Private Banking, believes a positive stance towards US equities remains warranted: 

"From an equity perspective, we are still quite constructive on the US and consequently overweighting the region in our equity positioning. In terms of both economic growth as well as earnings momentum, the US is clearly the leading region in the current business cycle when compared to Europe and emerging markets. This is partly explained by the country's large exposure to the technology industry, which is an important driver for global growth. This growth leadership explains and justifies a premium valuation."