Will We See A 30% Correction Due To A Trump Impeachment?

For those following my analysis in the S&P500 through the years, you would know that we have called the stock market rather well.  In fact, we called for the rally to 2100 in 2015, and then expected a pullback from 2100 to the 1800 region as we came into 2016.  However, unlike most others at the time, we expected that pullback would set us up for a 40%+ rally in the overall index before we see a 20-30% correction.  In fact, we were calling for a “global melt-up” at the time.

And, for those that remember back to November of 2016, when everyone and their mother was certain the market was going to crash if Trump won the election, we staunchly held to our guns and noted that we expect the market to rally strongly “no matter who was elected to office.”  And, that is exactly what we got, despite the market’s expectation of a market crash if Trump was elected.

During these past 3 years the news cycle has thrown one bomb at the market after another.  Yet, this Teflon market has not cared about any of these “issues,” as it has continued to rally unwaveringly towards our long-term targets.  And, if you think that any of these negative news events even mattered one iota to the market, then you have not been paying attention for the last 3 years.

Now, after all these years of bad news not causing even a dent in the market rally, consider that when the good news was announced that we had signed a trade deal with Canada, the market topped and then proceeded to drop 10%.  Even Jeff Miller, whose work I highly suggest you read to get a wonderful overall picture of the current state of the market, noted:

"Financial news continues to be very good, and financial markets are “ugly” in the terms of many veterans. The news has everyone worried, especially since there is no satisfying explanation."

While you ponder what is really driving the market, I now come to a point of conjecture, which I want to address before it may occur.  Again, if you have been following me closely, you will know that I am expecting a 30% correction.  The only question in my mind at this time is not if we get that correction, but what will the media pundits blame that correction upon?

As I have said so many times before, I am an analyst, and not a prophet. So, I am unable to tell you what the news of the day will be at the time.  But, I can assure you there will be some news cycle to which the pundits will certainly point to explain the market decline. 

You see, there is always going to be some news to point towards whether the market goes up or down.  And when the market moves in the opposite direction than most would have expected based upon the substance of a major news event, the pundits will simply look for another news event to explain why the market moved opposite of the major news event, or they simply claim “they sold the news,” or “the market is not trading based upon fundamentals at this time.”   Does any of this sound familiar with regard to the intellectual dishonesty ever-present in most pundit reports?

This brings me to my point of conjecture.  I wonder if a Trump impeachment proceeding is in our future.  Before I go down this rabbit hole, I want to strongly note that my point is not one in which I am saying he deserves to be impeached. Rather, I simply understand that this is a political process and truth is not always the driver of political processes.  Yet, if there is an impeachment proceeding initiated, I am quite certain that the pundits will quickly and confidently point to this as the reason for the 30% market correction I am expecting as we look towards 2019.  And, if they do, allow me to explain why they are full of excrement.

The narrative will certainly play out as follows:  The market likes certainty and stability within our government.  (Please ignore that this was the same reason many claimed that the market was going to crash if Trump was elected).  However, an impeachment proceeding places us into a very uncertain and unstable situation within our government.  Therefore, the market will react negatively to that uncertainty. 

It sounds reasonable, right?  It makes sense, right?  It sounds logical, right?

There is only one problem with such “reason,” “sense,” and “logic:” Why did the market rally 10% during the Clinton impeachment debacle?

Does impeachment not cause uncertainty or instability when it is a Democrat being impeached, whereas it will cause such uncertainty or instability when a Republican is impeached?  Yes, this is a rhetorical question.   So those of you that want to make this a partisan issue or to make it an issue specific to Trump, please spare us the commentary we can all go to the Yahoo boards to read.  I am simply pointing out the foolishness and inconsistency within this line of thinking.

While I clearly am unable to know in advance what the news cycle will be once we drop to our targets for a 30% correction, I do know that some news will likely be blamed.  But, if an impeachment hearing is to be blamed, there will be many questions that market pundits will have to answer.  While a decline based upon impeachment may sound like a nice narrative, it does not provide an intellectually honest reason for a market decline based upon market history.

Avi Gilburt is founder of ElliottWaveTrader.net.