QOTD: What would stocks do if Trump resigned

What would US stocks do if President Trump suddenly resigned?

Based on recent price action the answer is clear: rally 3-5%, at least, over a day or two. The reasoning here is simple. US equities see through the headlines (like the Comey firing) and essentially believe two things. First, corporate earnings are growing nicely. Second, the Republican-led Congress needs to pass tax reform by the 2018 midterm elections. As for who sits in the White House, markets will favor anyone who can push item #2 to a speedy conclusion while not screwing up #1. OK – one more (half a) thing: long term interest rates are going nowhere, fast. As long as markets believe those 2 ½ drivers remain in place, US stocks will (very) slowly grind higher.

And it isn’t just the market’s response to Tuesday’s headlines that make us say that. Our monthly look at sector and asset price correlations supports the thesis. Average S&P large cap sector correlations dipped in the last month and are averaging just under 60% YTD. That’s a clean 20 points lower than the 2009 – 2016 experience and shows fundamentals now matter again. But you don’t need a “Trump” card to play this game.

- Nicholas Colas, chief market strategist at Convergex, a global brokerage company based in New York