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Aug. 25, 2018, 2:34 p.m. EDT

Here’s why rising Trump impeachment odds aren’t rattling stock-market investors

Economy- and earnings-focused investors ‘can compartmentalize,’ says analyst

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By William Watts, MarketWatch

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President Donald Trump

Corporate earnings and the economy still appear to carry more weight with investors than President Donald Trump’s mounting legal and political woes, including the threat of impeachment.

According to political prediction markets, impeachment odds rose after Trump’s former personal attorney on Tuesday pleaded guilty to campaign finance violations and his former campaign manager was convicted on tax and bank fraud charges. In a Thursday interview on Fox News Channel, Trump predicted that if he were to be impeached, the stock market would “crash.”

But investors aren’t in panic mode.

Stocks drifted slightly lower Wednesday and Thursday, but held their ground. A Friday rally saw the S&P 500 /zigman2/quotes/210599714/realtime SPX +1.59% notch its first record close since January, while the Nasdaq Composite /zigman2/quotes/210598365/realtime COMP +2.21%  also logged a record. And for the week, the S&P 500 notched a 0.9% rise, while the Dow industrials /zigman2/quotes/210598065/realtime DJIA +1.78%  rose 0.5% and the Nasdaq Composite booked a 1.7% advance.

Why so resilient?

J.P. Gravitt, chief executive of research firm Market Realist, said there’s a twofold explanation for the market’s resiliency.

For stocks to sell off on impeachment fears, investors would “have to suppose that Trump is responsible for everything good in the market to suppose that the opposite would be true, and second we would have to know with a capital K that he will be gone and when any changes would be made to reverse his policies,” he said.

While investors are unlikely to panic, Gravitt said a more material threat could exert psychological pressure closer to midterm elections in November or if Special Counsel Robert Mueller “finds something more damaging.”

Read: Stock market can ignore Cohen and Manafort headlines—unless Trump takes this action

Rising odds

Based on data from political prediction market PredictIt.Org , the odds of Trump being impeached at some point in his first term hit 45% on Wednesday, up from 40% a week earlier. On Friday, they stood at 43%.

Investors, however, remained focused on an economy that’s growing at an annualized clip of near 4%, while the unemployment rate stands at less than 4%, said Greg Valliere, chief global strategist at Horizon Investments, in a Wednesday note.

“If the trade wars cool off a little this fall, we still think stocks can grind higher,” he said. “It’s not a pretty picture here in Washington, but as long as Trump doesn’t go totally off the rails, investors can compartmentalize.”

Politics take a back seat

So far, it’s another chapter in the story of a stock market that’s proven resilient in the face of developments surrounding Trump’s legal woes. Stocks are up around 20% since Robert Mueller was appointed special counsel in May 2017 to investigate possible collusion between the Trump campaign and Russia during the 2016 presidential election campaign, noted Oliver Jones, economist at Capital Economics.

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