What Acting AG Matthew Whitaker Means For Investors

In addition to a shift in the House majority and the passage of a number of new ballot measures this week, investors got one more major curveball from Washington when President Donald Trump ordered U.S. Attorney General Jeff Sessions to step down from his position and selected Matthew Whitaker as his temporary replacement.

In the past, Whitaker has been openly critical of the Robert Mueller investigation of Trump’s ties to Russia, and Height Capital Markets analyst Clayton Allen said on Thursday that Whitaker’s appointment likely reduces the likelihood of a damaging Mueller report.

Mueller Probe At Risk

The Mueller investigation appears to have advanced prior to the midterm elections, Allen said in a note, but Whitaker will likely immediately take steps to limit the scope and duration of the probe.

“We think such a move would infuriate House Democrats and lead to more aggressive investigatory efforts by lawmakers,” Allen wrote. “However, we do not believe increased Democratic oversight will prevent Whitaker or his successor from restricting Mueller's work.”

Allen said Trump would likely gladly trade the possibility of a better working relationship with Democrats for protection against Mueller.

What It Means For Investors

It’s difficult to say how the market would react to Trump dodging the Mueller bullet. The market has performed exceptionally well since his election in 2016, but much of the gains have come as a result of general Republican policies, such as corporate tax reform. The SPDR S&P 500 ETF Trust SPY is also up 0.9 percent since Tuesday’s elections, suggesting investors may be a bit more comfortable with a Democratic check on Trump’s powers.

From a historical perspective, the prospect of a Trump impeachment may not bode well for stock prices in the near-term. According to CFRA Research, the S&P 500 dropped 19.4 percent from its peak on July 17, 1998 until the Starr report on President Bill Clinton was released on Sept. 9, 1998.

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