The sudden race to impeach President Donald Trump has yet to have much of an impact on the Dow Jones or broader stock market. But it's premature to conclude that won't change as the public learns details of Trump's effort to get Ukraine to investigate potential 2020 election rival Joe Biden. If the president's approval rating takes a beating from Trump impeachment developments while odds soar that Elizabeth Warren wins the Democratic nomination, political risk will grow and stocks could suffer.
At the moment, Trump's job approval rating is close to a two-and-a-half year high. RealClearPolitics puts the Trump approval rating at 44.9%, while FiveThirtyEight, which adjusts polls based on methodology and reliability, has it at 42.9%.
If either of those numbers falls to 40% or below, that is likely to begin to shake investor confidence in Trump's reelection prospects.
Does Dow Jones Even Want Trump Reelected?
Wall Street has a love-hate relationship with Trump. Investors hate his China tariffs. Yet the China trade war may not come to a neat end if Trump loses in 2020. Investors tend to like the positive earnings impact from his big spending and anti-regulation policies. And they love his tax cuts — particularly his corporate tax cut, which shrunk the effective tax rate for S&P 500 companies by one-third.
Given that economic growth already looks somewhat fragile, rising 2020 election odds that a Democrat will win the White House and potentially have the chance to reverse that corporate tax cut won't go over well on Wall Street.
Democrats also would need to pick up at least three Senate seats and hold the House to repeal tax cuts or pass other major legislation. Yet if Trump's approval sinks below 40%, a Democratic Senate takeover may look more likely.
Trump Impeachment Odds Soar
Unlike public opinion polls that move with a time lag, political betting markets react almost immediately. Of course, betting markets can be wrong and aren't all that liquid. Still, they may have some value in handicapping the future, and Wall Street keeps an eye on them.
The PredictIt market showed odds that House Democrats will impeach Trump during his first term surged above 60% on Wednesday. That happened as the White House released a loose transcript of Trump's call with Ukraine President Volodymyr Zelensky. Trump impeachment odds had been stuck around 25% just a week earlier.
Trump Reelection Odds Are Stable
While Trump impeachment suddenly looks likely, Trump 2020 election odds have yet to show much, if any, movement.
Based on bets placed at PredictIt and Betfair, Democrats have 53% odds of winning the White House. That's according to the PredictWise site from Microsoft economist David Rothschild.
That stability may indicate an expectation by market participants that Trump impeachment won't cost him many votes. That seems plausible, given the highly polarized state of politics. Yet investors might consider another possible explanation, because Trump impeachment isn't the only political bet with surging odds.
Warren Is Now Big Favorite Over Biden For Democratic Nomination
Suddenly, betting markets see Elizabeth Warren as a huge favorite to win the Democratic nomination. Odds of a Biden victory are crumbling, at least according to political betting markets.
PredictWise calculates her odds of winning the Democratic nomination at 53% vs. 17% for Joe Biden. RealClearPolitics places Warren's odds at 47% vs. 22% for Biden.
While Warren has been the betting markets favorite for some time, RealClearPolitics shows that her advantage over Biden has doubled over the past week, from about 12 points to 25 points. That partly reflects some actual polls showing Warren ahead of Biden nationally and in first-to-vote Iowa.
One might expect that the significant shift in the Democratic race toward Warren would boost Trump's reelection odds. That's because polls have consistently showed that Biden is the Democrat with the best chance of beating Trump in the 2020 election — by far. The September IBD/TIPP Poll had Biden with a 12-point advantage over Trump, while Warren outpolled Trump by just 3 points.
Warren A Big Dow Jones Risk
Take the evidence from political betting markets with a huge grain of salt. Yet the overall message for Wall Street is the 2020 election odds of a left-wing Democrat winning the White House have surged amid the Trump impeachment push.
Handing Warren the keys to corporate regulation would surely make Wall Street nervous. She's best known for wanting to break up big banks — and big tech. While neither goal may be likely, it's fair to assume that Warren would be more negative for corporate earnings than Biden.
Butm for now, the The Dow Jones Industrial Average is within 2% of all-time highs.
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