Wall Street Settles In for Slow Burn Investigation in Washington

Wall Street is settling in for a slow burn Russia probe in Washington, D.C. -- special investigations take on average more than two years.

Special counsel Robert Mueller's investigation into Russia's role in the 2016 election and the Trump campaign's ties to Russia has expanded to include an examination of whether President Donald Trump attempted to obstruct justice, the Washington Post reported late Wednesday. Markets opened lower on Thursday, largely as a result of the ongoing tech selloff, as investors weigh what, if anything, out of the White House will finally prove real cause for concern.

"Washington in general has become Entertainment Tonight, but that's it," said Jim Paulsen, an independent market strategist formerly of Wells Capital Management.

Wall Street has increasingly ignored the drama surrounding the Trump administration, turning instead to the economy, earnings and fundamentals as an explanation for the bull market. Investors have even largely shrugged off growing indications that stock-boosting tax reform is unlikely to arrive this year, if before the 2018 midterm elections at all.

"If there were expectations after Trump took office for significant policy legislation that would help boost the economy and the market advance, that's gone," Paulsen said. "I don't think there's hardly anyone left that has high expectations, if any at all, for much to be done in 2017 or now even before the midterms."

"Low expectations are harder to disappoint," read the headline of a recent note from Goldman Sachs (GS) analyst Alec Phillips.

The ongoing Russia probes could potentially result in a number of major revelations, or, of course, nothing at all. Beyond Mueller's investigation, the Senate Judiciary Committee on Wednesday announced it would pursue investigations into any efforts to influence the FBI's work on the Russia matter and the events leading up to fired FBI Director James Comey.

"There should be no improper interference with FBI investigations to favor any elected official or candidate of either party," said Committee Chairman Chuck Grassley (R-IA) in a statement.

The Post reported also on Wednesday that investigators are also looking for evidence of financial crimes among Trump associates.

Compass Point analyst Isaac Boltansky in a note on Thursday said that Mueller's decision to expand the investigation into obstruction of justice and request interviews from Director of National Intelligence Dan Coats, National Security Adviser Mike Rogers and former Deputy NSA Richard Ledgett is sooner than expected.

"Our sense is that the seemingly expedited shift to the obstruction of justice issue either deliberately or inadvertently increases the political cost of President Trump deciding to dismiss Mr. Mueller, which was reportedly under consideration," he said. To put it another way, with the obstruction of justice issue now reportedly in the special counsel's scope, the optics of firing Mr. Mueller would likely prove politically perilous for President Trump as there has been broad support for the special counsel (63% of voters support)."

The New York Times reported on Tuesday that Trump had been considering firing Mueller, and some public figures close to him, such as Chris Ruddy and Newt Gingrich, have criticized the former FBI head.

Trump tweeted his response to the reported obstruction investigation on Thursday.

They made up a phony collusion with the Russians story, found zero proof, so now they go for obstruction of justice on the phony story. Nice

— Donald J. Trump (@realDonaldTrump) June 15, 2017

You are witnessing the single greatest WITCH HUNT in American political history - led by some very bad and conflicted people! #MAGA

— Donald J. Trump (@realDonaldTrump) June 15, 2017

While the smoke surrounding the Russia investigation and Trump grows thicker, these things take a while, Boltansky warned. Investors waiting for a quick resolution will be disappointed -- the average length of special prosecutors' and independent counsels' investigations since the Watergate is 904 days, or about two and a half years.

"Most...expectations were pretty shattered before last night's [report on Mueller] already," Paulsen said. "Markets have moved on."

Editors' pick: Originally published June 15.

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