In POTUS 45: Is the Mueller report a market risk? , we walked through the possible investment implications of both Special Counsel Robert Mueller's report to Congress as well as the investigations being undertaken by Congress itself.

Although we've learned some more since then—having seen the content of the redacted report, and the reaction to its dissemination—we have not yet seen the type of "smoking gun" that would prompt Democrats to press forward with impeachment, or for Republicans to support such a move.

Ultimately, the decision to move forward with the Articles of Impeachment continues to rest with the Democratic Party leadership in the House of Representatives, and with Speaker of the House Nancy Pelosi.

Speaker Pelosi has been reticent to begin impeachment proceedings, but the White House has taken a hardline stance against cooperating, going so far as to ignore subpoenas issued by Congress. In response, we have seen a notable uptick in the number of House Democrats calling for impeachment as a necessary tool for their oversight obligations, while other Democrats have cautioned Speaker Pelosi against pursuing impeachment, arguing that it could backfire in the 2020 election campaign. Speaker Pelosi scheduled a "special caucus meeting" on 22 May to address these frustrations and coordinate on strategy.

Our colleague John Savercool, Head of UBS US Office of Public Policy, recentlycautioned investors to take these headlines with a grain of salt. In his words:

"The House hearings and contempt action will get all of the attention for the rest of this month, but that doesn't mean we will learn anything new. We urge you to take all of this activity with a grain of salt and not view it as having a meaningful market impact. For now, these actions are just part of the broader partisan divide that defines Washington these days. Only with new, serious and factual information will they become truly significant. With many of these investigations likely to become court cases, such information won't materialize anytime soon if it does at all."

So while political rumblings are on the rise, we maintain our view that impeachment is possible, but unlikely. Similarly, removal from office is highly unlikely. Perhaps most importantly, neither would be likely to have a significant or lasting market impact.

Conclusion: Tensions are high, market risk is low

Knowing what we know today—and taking a cue from historical examples of politically momentous events—we recommend against trading in anticipation or reaction to political headlines.

We could see bouts of market volatility amid significant political uncertainty, especially if the acrimonious relationship between President Trump and Congress results in gridlock that impedes important Congressional action, such as debt-ceiling and government-funding-related bills. Even so, gridlock alone is unlikely to trigger a recession or end the bull market.

For those who feel strongly about the politics of this issue, we recommend expressing your political views with a vote instead of a trade.

Author:

Michael Ryan, CFA, Chief Investment Officer Americas, UBS Financial Services Inc. (UBS FS) Justin Waring, Investment Strategist Americas, UBS Financial Services Inc. (UBS FS) Arsh Tandon, GTP Analyst, UBS Financial Services Inc. (UBS FS)

This report has been prepared by UBS Financial Services Inc. (UBS FS). Please see important disclaimers and disclosures at the end of the document.

Appendix

UBS Chief Investment Office's ("CIO") investment views are prepared and published by the Global Wealth Management business of UBS Switzerland AG (regulated by FINMA in Switzerland) or its affiliates ("UBS"). The investment views have been prepared in accordance with legal requirements designed to promote the independence of investment research.

Generic investment research – Risk information:

This publication is for your information only and is not intended as an offer, or a solicitation of an offer, to buy or sell any investment or other specific product. The analysis contained herein does not constitute a personal recommendation or take into account the particular investment objectives, investment strategies, financial situation and needs of any specific recipient. It is based on numerous assumptions. Different assumptions could result in materially different results. Certain services and products are subject to legal restrictions and cannot be offered worldwide on an unrestricted basis and/or may not be eligible for sale to all investors. All information and opinions expressed in this document were obtained from sources believed to be reliable and in good faith, but no representation or warranty, express or implied, is made as to its accuracy or completeness (other than disclosures relating to UBS). All information and opinions as well as any forecasts, estimates and market prices indicated are current as of the date of this report, and are subject to change without notice. Opinions expressed herein may differ or be contrary to those expressed by other business areas or divisions of UBS as a result of using different assumptions and/or criteria. In no circumstances may this document or any of the information (including any forecast, value, index or other calculated amount ("Values")) be used for any of the following purposes (i) valuation or accounting purposes; (ii) to determine the amounts due or payable, the price or the value of any financial instrument or financial contract; or (iii) to measure the performance of any financial instrument including, without limitation, for the purpose of tracking the return or performance of any Value or of defining the asset allocation of portfolio or of computing performance fees. By receiving this document and the information you will be deemed to represent and warrant to UBS that you will not use this document or otherwise rely on any of the information for any of the above purposes. UBS and any of its directors or employees may be entitled at any time to hold long or short positions in investment instruments referred to herein, carry out transactions involving relevant investment instruments in the capacity of principal or agent, or provide any other services or have officers, who serve as directors, either to/for the issuer, the investment instrument itself or to/for any company commercially or financially affiliated to such issuers. At any time, investment decisions (including whether to buy, sell or hold securities) made by UBS and its employees may differ from or be contrary to the opinions expressed in UBS research publications. Some investments may not be readily realizable since the market in the securities is illiquid and therefore valuing the investment and identifying the risk to which you are exposed may be difficult to quantify. UBS relies on information barriers to control the flow of information contained in one or more areas within UBS, into other areas, units, divisions or affiliates of UBS. Futures and options trading is not suitable for every investor as there is a substantial risk of loss, and losses in excess of an initial investment may occur. Past performance of an investment is no guarantee for its future performance. Additional information will be made available upon request. Some investments may be subject to sudden and large falls in value and on realization you may receive back less than you invested or may be required to pay more. Changes in foreign exchange rates may have an adverse effect on the price, value or income of an investment. The analyst(s) responsible for the preparation of this report may interact with trading desk personnel, sales personnel and other constituencies for the purpose of gathering, synthesizing and interpreting market information. Tax treatment depends on the individual circumstances and may be subject to change in the future. UBS does not provide legal or tax advice and makes no representations as to the tax treatment of assets or the investment returns thereon both in general or with reference to specific client's circumstances and needs. We are of necessity unable to take into account the particular investment objectives, financial situation and needs of our individual clients and we would recommend that you take financial and/or tax advice as to the implications (including tax) of investing in any of the products mentioned herein.

This material may not be reproduced or copies circulated without prior authority of UBS. Unless otherwise agreed in writing UBS expressly prohibits the distribution and transfer of this material to third parties for any reason. UBS accepts no liability whatsoever for any claims or lawsuits from any third parties arising from the use or distribution of this material. This report is for distribution only under such circumstances as may be permitted by applicable law. For information on the ways in which CIO manages conflicts and maintains independence of its investment views and publication offering, and research and rating methodologies, please visit www.ubs.com/research.

Additional information on the relevant authors of this publication and other CIO publication(s) referenced in this report; and copies of any past reports on this topic; are available upon request from your client advisor.

Important Information about Sustainable Investing Strategies: Incorporating environmental, social and governance (ESG) factors or Sustainable Investing considerations may inhibit the portfolio manager’s ability to participate in certain investment opportunities that otherwise would be consistent with its investment objective and other principal investment strategies. The returns on a portfolio consisting primarily of ESG or sustainable investments may be lower than a portfolio where such factors are not considered by the portfolio manager. Because sustainability criteria can exclude some investments, investors may not be able to take advantage of the same opportunities or market trends as investors that do not use such criteria. Companies may not necessarily meet high performance standards on all aspects of ESG or sustainable investing issues; there is also no guarantee that any company will meet expectations in connection with corporate responsibility, sustainability, and/or impact performance.

Distributed to US persons by UBS Financial Services Inc. or UBS Securities LLC, subsidiaries of UBS AG. UBS Switzerland AG, UBS Europe SE, UBS Bank, S.A., UBS Brasil Administradora de Valores Mobiliarios Ltda, UBS Asesores Mexico, S.A. de C.V., UBS Securities Japan Co., Ltd, UBS Wealth Management Israel Ltd and UBS Menkul Degerler AS are affiliates of UBS AG. UBS Financial Services Incorporated of Puerto Rico is a subsidiary of UBS Financial Services Inc. UBS Financial Services Inc. accepts responsibility for the content of a report prepared by a non-US affiliate when it distributes reports to US persons. All transactions by a US person in the securities mentioned in this report should be effected through a US-registered broker dealer affiliated with UBS, and not through a non-US affiliate. The contents of this report have not been and will not be approved by any securities or investment authority in the United States or elsewhere. UBS Financial Services Inc. is not acting as a municipal advisor to any municipal entity or obligated person within the meaning of Section 15B of the Securities Exchange Act (the "Municipal Advisor Rule") and the opinions or views contained herein are not intended to be, and do not constitute, advice within the meaning of the Municipal Advisor Rule.

External Asset Managers / External Financial Consultants: In case this research or publication is provided to an External Asset Manager or an External Financial Consultant, UBS expressly prohibits that it is redistributed by the External Asset Manager or the External Financial Consultant and is made available to their clients and/or third parties. For country disclosures, click here.