The market must not be watching the political cable TV shows.

After Michael Cohen's guilty plea and Paul Manafort's conviction on Aug. 21, the market didn't bat an eye. But should it? Or is the market in the right to ignore the current political environment, which just may be more unpredictable than the market itself?

"Financial markets price in expectations of the future. An event (like the legal woes of the two Trump confidants) should only impact security prices if they have an ultimate influence on future corporate profits and market interest rates. The recent news that has a much bigger influence on the markets is the likelihood of interest rate increases by the Federal Reserve Board," says Robert R. Johnson, professor of finance at Creighton University. 

The market even ignored that: the Dow Jones Industrial Average rose 133 points on Friday despite Fed chairman Jerome Powell committing to a steady dose of rate hikes.

"Yes, politics do affect the market, but the primary reason for the political effect of the markets is when politics are economically related, for example when the tax cuts were announced, it was positively related to the markets," explains Dr. Stuart Michelson, a professor of finance at Stetson University

Johnson said that he believes, similarly to Dr. Michelson, that the economy is strong. Strong enough, in fact, for the market to possibly fight off the bad political news. Other experts TheStreet talked with say the strong corporate profit outlook for 2018 and 2019 are unlikely to change amid Trump's political mess.

The Dow ended the week up about 0.5%. So maybe the market isn't as dumb as it looks on the surface

 

Some Perspective

Marc Chaikin, founder of Chaikin Analytics, says that investors have dismissed other political events such as the Kennedy assassination, Nixon resignation, Clinton impeachment and even the Iran Contra situation.

Market reaction to the Clinton scandal was perhaps the most surprising. While stocks fell ahead of the release of the Starr report, they climbed thereafter and through the conclusion of the impeachment proceedings.

The S&P 500 gained slightly from July 1 to July 17 of 1998, but from there until the release of the Starr report on September 9, it fell by 19.4%, according to data from CFRA Research. After that it rallied, recovering the entire decline by November 28, 1998, while impeachment proceedings were still underway but a month before a conclusion was reached.

So, really, what makes Trump's administration's political drama so special? 

"I think that this is a short-term distraction at a time when the market is typically weak on a seasonal basis...this increases the likelihood that the Democrats will take back the house in November and guess what? Wall Street loves gridlock," Chaikin told TheStreet's founder, Jim Cramer.

Wall Street certainly does. Investors spent the week bidding up the riskiest names in the market such as tech darling Nvidia (NVDA) and streaming king Netflix (NFLX) . 

  • Curious to see what else Chaikin and Cramer talked about? Watch the full video here

And what about those comments that President Trump made on Aug. 22? If you need a refresher, Trump said, "I'll tell you what, if I ever got impeached, I think the market would crash." "I think everybody would be very poor," Trump continued in the interview with Fox and Friends, implying that the stock market crash could harm the economy in a major way. 

"I think, if anything, if Trump were impeached, it would be great for stocks," says Peter Cohan, lecturer of strategy at Babson College. He adds, "When I saw that Trump said that stocks would collapse...it struck me as one statement that was unsubstantiated and could easily be proven untrue by data."

"Donald Trump has proven to be a President of unrivaled volatility in many ways. I believe that the volatility and unpredictability of the President has a negative impact on the markets. While the markets like many of his broad policies—such as tax reform and deregulation—and may dislike other policies like tariffs, no one can be certain what sweeping pronouncements are coming next from President Trump," Johnson says.

Keep doing your thing, Mr. Market,

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