Political strategist Greg Valliere.

After Tuesday night’s election losses in Virginia and Kentucky, Republicans, and especially President Donald Trump, should be very worried, said Greg Valliere, chief U.S. policy strategist for AGF Management, who spoke this morning at the Schwab Impact conference in San Diego.

Tuesday night’s results were “ominous” for Trump, Valliere said.

The Washington insider provided his view on current political events and how these could affect markets going forward.

“It’s naïve to think the Fed isn’t aware of Trump’s tweets, at least there might be a subliminal effect,” Valliere said, adding that Trump may believe he can fire Federal Reserve Board Chairman Jerome Powell, but the language is vague. “He does think he can demote him to just a governor, but he can’t fire the entire [Federal Open Market Committee],” he said.

The big story is spending, Valliere said, which has pushed the deficit to $1 trillion and will weigh on the economy. He said GDP growth will be between 1-1.5% in 2020, which “isn’t what Trump wants but he’ll have to live with it.”

Trump will be impeached by the U.S. House of Representatives, Valliere said, but it’s doubtful the Senate will vote to convict.

He also said that Trump was Wall Street’s favorite to win the next election, but “people are going to waver today as they analyze the fact that in the state of Virginia, both houses went Democrat, overwhelming support for Democrats in suburbs, moderate voters, female voters. And in Kentucky, a very conservative state, the controversial governor lost, [even though] Trump campaigned for him and said this would be a referendum on impeachment.”

He also said today’s Washington Post poll showed Joe Biden ahead of Trump by 17 points and Elizabeth Warren ahead of Trump by 15 points. “More important, all the internals were just horrid for [Trump]. College-educated women, independents [voted Democrat],” Valliere said. “Maybe the most damaging for him is only 32% think Trump is trustworthy and honest.”

He did say Trump has some assets: “He is the most gifted politician I’ve seen in my career at demonizing his opponents … whether it’s sophomoric nicknames or more specific attacks on their records.”

He also noted the Washington “think” that the Democrats have a “pretty weak field,” calling out Biden’s age (78 soon) and Pete Buttigieg’s (37), and the socialist lean of Elizabeth Warren (whom he thinks would become more moderate if she is elected). He doesn’t see a market drop.

He did say that the impeachment proceedings have “sucked out all the air on the Hill” and that trade issues with Mexico and Canada have stalled.

But the wild card will be geopolitical, possibly Iran feeling emboldened with Trump’s isolationism. In the end, he said, even this isn’t as important as earnings, the federal funds rate and the GDP.

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