U.S. Stocks Dip in Early Trade on Uncertainty Over Trump’s Legal Problems

U.S. equity futures are under pressure in the premarket trade, pointing to a possible lower cash market opening on Wednesday. The selling pressure started after President Trump’s former lawyer, Michael Cohen, pleading guilty on Tuesday, said a candidate for federal office directed him to pay off a porn star “for the principal purpose of influencing” the election.

At 0315 GMT, the benchmark September E-mini S&P 500 Index is trading 2855.75, down 6.00 or -0.25%, the blue chip Dow Jones Industrial Average is trading 25754, down 53 or -0.21% and the tech-driven NASDAQ-100 Index is at 7380.25, down 17.25 or -0.23%.

Investors are selling because as a result of the outcome of the trials, the focus will shift to President Trump and could lead to whether he colluded with the Russians to rig the Presidential election. Furthermore, the results raise the importance of the November mid-term elections.

Should the Republicans lose in November, the power will shift to the Democrats who will then likely move to impeach the President. This could cause economic turmoil in the U.S. markets because it could eventually lead to the derailment of Trump’s economic plans, several of which including tax reform, have helped fuel the stock market to all-time highs this year.

The early price action is basically position squaring due to the certainty created by the news. Investors haven’t turned sour on the market because a long series of events have to take place before we will know the outcome.

Some traders are calling this event “noise”, but investors will have to decide if they want to hold on to stocks or continue to buy more if the President becomes preoccupied with this potential scandal rather than say the trade issues.

U.S. Treasury Markets

U.S. Treasury yields fell following the announcement that Trump’s former lawyer, Michael Cohen plead guilty to charges against him. The guilty plea was not the key event. The fact that he said a candidate for federal office directed him to pay off a porn star “for the principal purpose of influencing” the election is what rattled investors. This is because many believe that candidate to be President Trump.

The initial reaction to the news drove investors out of risky assets and into the safe-haven Treasury market. This drove down yields at least temporarily.

U.S. Dollar

Falling Treasury yields also triggered a break in the U.S. Dollar against a basket of currencies. When yields fall, the dollar becomes a less-attractive investment. The initial move was moderate which suggests investors may have decided to wait for further developments down the road as the situation unfolds.

The biggest concern at this time is that President Trump may be too preoccupied by legal issues to follow-through on many of his economic plans. Furthermore, pending the outcome of the November mid-term elections, he may or may not be facing impeachment proceeding which would further derail his plans to “Make America Great Again”.