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Most of Wall Street’s finest minds are brushing off investors’ worries about a potential impeachment of Donald Trump. No need to fret, they say, because any attempt to remove the U.S. President is not going to get very far.

This carefree attitude makes sense if you view the issue as simply a question of whether the impeachment inquiry launched Tuesday in the U.S. House of Representatives has a chance of going all the way and forcing the current occupant out of the White House. That is not going to happen, because any attempt to remove a Republican president will inevitably die in the Republican-controlled Senate.

But those who are playing down a potential impeachment are ignoring the bigger question of what the inquiry means for markets over the year ahead. If you view the House probe not just as an isolated incident, but as the starting point for what could be the most vicious, polarized presidential campaign in recent U.S. history, then investors have lots of reason to worry – no matter who wins.

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On the one hand, the re-election of Mr. Trump in 2020 would mean doubling down on trade wars, with all the uncertainty that would entail. It would also mean more trillion-dollar deficits and, in all probability, more head-butting between the White House and the Federal Reserve.

On the other hand, the thought of a President Elizabeth Warren or President Bernie Sanders is enough to send shivers down the spines of the U.S. moneyed class. Both those Democratic candidates have backed wealth taxes, sweeping health-care reform and strong action on climate change. In addition, many Democrats are in favour of reining in the tech giants and taking a much tougher line on drug makers and oil frackers.

When it comes to trade, Democrats could be just as demanding as Republicans, although in different ways – such as demanding more in the way of environmental guarantees and worker protection. They could also be equally fond of deficit spending, but with a very different emphasis on where that money is spent.

In the past, investors have been smart to ignore the political thunder around impeachments and focus instead on the underlying economic landscape.

Bill Clinton’s impeachment in 1998 didn’t stop a giddy stock market from growing even more giddy. (The S&P 500 soared 26 per cent that year, fuelled by dot-com euphoria.) On the other hand, Richard Nixon’s resignation on Aug. 8, 1974, in the face of almost-certain impeachment, didn’t halt a long slide in share prices. (The S&P fell another 14 per cent before the end of the 1974 as the aftermath of the first oil shock battered the economy.)

But this time around, politics matters more because the difference between the two parties on issues such as fossil fuels, health care and taxation are so large. An impeachment process against Mr. Trump – even one that is doomed to fail – is likely to push both parties to even more extreme, unpredictable positions.

“It would be complacent to think that the impeachment process just adds another ring to the circus and will prove inconsequential for markets into 2020,” John Normand, head of cross-asset fundamental strategy at JPMorgan Chase & Co., wrote in a note.

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He argues that investors are not putting enough weight on the prospect of China taking a harder line on trade, and Iran raising tensions in the Middle East, if those countries perceive Mr. Trump as weakened by problems at home. He also says any impeachment process will ripple through Senate and House elections and help determine whether whoever is in the White House in 2021 will be working with a hostile Congress or a friendly one.

For now, most investors are minimizing any potential implications. An RBC Capital Markets survey found 57 per cent of equity investors viewed a scenario where the President is impeached by the Democrat-controlled House but not convicted by a Republican-controlled Senate as neutral for stocks.

That seems rather hopeful. Ever since the financial crisis, U.S. stocks have benefited from the perception that the United States is still a haven of political stability compared with Europe or Asia. If that perception is challenged, it strengthens the case for taking shelter in havens such as gold and bonds. At the very least, it adds to other worries, such as a slowing global economy and trade tensions, that are diminishing the appeal of U.S. stocks.

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