Greg Valliere of Horizon Investments.

Impeachment of President Donald Trump is a real possibility, which could rattle markets already unnerved by trade disputes and Federal Reserve tightening, says Greg Valliere, chief global strategist of Horizon Investments.

In his latest Capitol Notes — Valliere is based in Washington — Valiere writes: “Donald Trump’s legal jeopardy has increased dramatically in the last 48 hours. Our sources in both parties are now talking openly about an impeachment scenario that could drag well into 2019 — and that prospect, combined with trade disputes and more Federal Reserve tightening — could increase market volatility despite great economic fundamentals.”

Valliere has raised his odds of impeachment by the House — where impeachment charges must first be brought — to “at least 50%” from around 35% a few months ago, and he has increased the chances of a conviction by the Senate to 25% from close to zero. If Republicans lose control of the House in the midterm elections, which “looks doable,” calls for impeachment will rise, writes Valliere. Democrats need only to pick up a net 23 seats to gain control of the House.

Valliere says he changed his outlook on impeachment after the list of special counsel Robert Mueller’s questions for Trump were published this week in the New York Times. That list “made it clear that the special prosecutor has hit pay dirt with former Trump associates who have copped pleas and are singing.” Valliere speculates, as others have, that the list was probably leaked by the White House to show that Mueller’s investigation was “out of control.”

Since Mueller has indicated he doesn’t think he has the authority to indict a sitting president, he  may “dump all of his Trump findings on Congress,” writes Valliere. But even if the Democrats gain control of the House and vote to impeach they face a losing battle in the Senate, says Valliere, because 67 votes are needed to convict in impeachment proceedings.

In the meantime, Trump will be “increasingly distracted by what he considers a ‘witch hunt,’ which may make him “lash out even more erratically in the coming months as an impeachment scenario begins to look plausible,” and financial markets will “face months and months — maybe a full year — of impeachment speculation.”

Trump is also embroiled in “a good old-fashioned sex scandal” that involves other legal liabilities, writes Valliere, referring to porn star Stormy Daniels, who is suing Trump to invalidate a nondisclosure agreement and for defamation. Valliere says that scandal has intensified because of recent remarks from Rudy Giuliani, who joined Trump’s legal team and admitted on national television this week that Trump reimbursed his lawyer Michael Cohen, who had paid Daniels $130,000.

“There’s clear legal liability for the president, whose actions probably violated campaign finance laws,” writes Valliere.

Michael Avenatti, Daniels’ attorney, expects Trump will eventually resign before his term ends because of those violations and other serious legal issues.

— Check out Democrats Unified Against Trump but Torn on Election Agenda on ThinkAdvisor.