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History Repeats: Lies, Impeachment and Markets!

The double negative verdicts of Aug 21 may be considered as start of end of Trump Presidency. Only history would tell us significance of events happened on that day. Almost exactly 20 years back, political news were filled with special counsel Ken Starr and possible impeachment of President Clinton. Now it is Muller and Trump filling the political news. Special counsel Muller may file his report sometime later this year and democrats may gain control of house triggering possible impeachment process of President Trump. So what impact will it have on markets? Looking back, markets in 1998 fell nearly 20% leading to release of Starr's report. But once report was out and actual impeachment process started in Nov, markets regained all the losses and some more. It gained 28% by the time senate acquitted President Clinton in early 1999. While Clinton became lame-duck in last 2 years, markets continued to gain momentum during dot.com era. Looking at this history, what could happen this time?
Markets reached all time high this week. That means markets are already discounting possible outcome for Trump. Whatever happens to Trump, economy would remain strong for next 3-4 quarters. Markets may become nervous leading to release of Muller report but they will recover after the event. In some scenario, Trump getting wrapped up in impeachment drama may turn out to be positive when it comes to trade war. Republicans would start speaking openly against Trump. Economy would keep its momentum. Fed will become careful in raising the interest rates (due to political drama). So overall markets would be ok during potential impeachment drama similar to what happened in 1998/1999. But one must be careful. The way history is repeating for political drama, it can also repeat for market drama. We all know how dot.com bubble burst in 2000. So when it comes to 2020, watch out for  repeat of 2000 dot.com bust. And this time also most likely it would be due to Tech. The indication of this would be when Tech sector weight in S&P crosses 30-32% (currently it is at 26%. During dot.com bubble, it reached 34%). Till then, let the party continue!

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