Stocks slumped Wednesday with the Dow Jones Industrial Average and S&P 500 ending in negative territory, as political storm clouds gathered over the White House. The technology-heavy Nasdaq eked out a gain. Losses were kept in check by resilient optimism over corporate earnings.

While drinking coffee this morning and starting work on this column, I decided to flip on the financial cable shows to see how they were covering the Trump administration’s worsening scandals. Maybe I’d learn something.

But instead of substantive analysis from hard-working reporters, I was subjected to insufferable hyperbole from expensively coiffed hacks. I couldn’t hit the off button fast enough.

I was reminded yet again that financial TV channels aren’t news; they’re show-biz. They’re designed for entertainment, not enlightenment. They appeal to the lowest common denominator to boost their ratings.

You’d get better stock-picking guidance from a dart-throwing chimp.

The good news today is that the S&P 500’s bull market officially turned 3,453 days old, making it the longest such streak in history. But stocks struggled for direction throughout the trading session and closed mostly in the red, as President Trump’s mounting legal woes started to worry Wall Street.

Former Trump campaign manager Paul Manafort was found guilty yesterday on tax and bank fraud charges. Manafort faces an even tougher trial on separate charges in September.

Manafort possesses insider knowledge that Special Counsel Robert Mueller wants to tap in his Trump-Russia investigation. If Manafort “flips” and provides damning evidence, the president could face impeachment.

The Manafort verdict was followed last night by Trump’s former personal lawyer Michael Cohen pleading guilty to a range of charges. Cohen told a federal judge that Trump instructed him to pay off a pornographic film star and a former Playboy model to influence the 2016 election, implicating the president in a federal crime.

Wall Street often shrugs at political drama, which is smart. Headlines come and go and it’s usually better to keep an eye on the variables that really matter, such as earnings reports and economic data. But political scandals of this magnitude are an exception because they introduce tremendous uncertainty and pose an existential threat to the party in power.

Another wild card for investors: the looming midterm elections. If current polls are correct and Democrats win back the House, the president’s Wall Street-friendly agenda could be imperiled.

Get ready for a tax hike…

Pessimism over trade also weighed on stocks. On the topic of tariffs, investors have been manic-depressive. Today, the mood veered downward.

U.S. and Chinese officials resumed trade talks Wednesday, but under low expectations set by Trump himself, who said this week that he didn’t foresee much progress.

The talks are scheduled to last two days and involve low-level representatives. Each country is poised to hit the other with new tariffs on Thursday.

The U.S. is set to slap a 25% tariff on another $16 billion worth of Chinese goods tomorrow and China has vowed to immediately respond with a 25% tariff on an equal amount of American exports.

It’s the second round of tariffs implemented by the two countries this year. As of Thursday, a total of $50 billion worth of goods on each side will be taxed.

Make no mistake: tariffs are taxes. And contrary to common misconception, countries don’t pay these taxes. Companies and individuals do. The trade war amounts to an increase in taxes that in large measure negates the tax cut bill signed by Trump in December.

The White House argues that tariffs on steel and aluminum bring back jobs to the U.S. That’s true, but only to a point.

A non-partisan consulting firm called The Trade Partnership (TTP) says the cost of these additional jobs is the loss of a greater number of jobs in many other areas (see chart, compiled with data from TTP):

Disappointing news in the crucial housing sector also dampened investor spirits. The National Association of Realtors reported today that existing home sales ran at a 5.34 million annual rate in July, down 0.7% compared to June. That was the slowest pace since February 2016. Expectations called for 5.4 million.

Offsetting these headwinds are strong second-quarter earnings. Retailer Target (NYSE: TGT) popped 3.32% today after releasing blowout earnings.

For the second quarter of 2018, with nearly all of the companies in the S&P 500 reporting actual results for the quarter, 79% have reported a positive earnings per share (EPS) surprise and 72% have reported a positive revenue surprise.

The year-over-year EPS growth rate for the second quarter has come in at 24.6%. The revenue growth rate has been 9.9%. These robust earnings and revenue growth numbers have provided a floor for stocks.

The technology, energy, and materials sectors were the largest contributors to earnings and revenue growth in the quarter. Large-cap tech stocks as a whole sport excessive valuations, but smaller-cap value plays in the sector still look appealing. As we enter the late stages of economic recovery, energy and materials stocks should do well as commodity prices rise.

How will the aforementioned scandals pan out? Hard to say, but I can safely predict that some of the folks involved will be trading Armani clothing for orange jumpsuits. Investors are likely to suffer collateral damage. Today, losses were contained by strong corporate report cards. But the political storm is gathering steam.

Wednesday Market Wrap

• DJIA: 25,733.60 -88.69 (0.34%)
  
• S&P 500: 2,861.82 -1.14 (0.04%)
  
• Nasdaq: 7,889.10 +29.92 (0.38%)
  

Wednesday’s Big Gainers

• Pure Storage (NYSE: PSTG) +14.22%

Data storage provider posts strong earnings.

• La-Z-Boy (NYSE: LZB) +13.14%

Furniture maker beats on earnings.

• Systemax (NYSE: SYX) +7.89%

Analysts upgrade direct marketer of branded products.

Wednesday’s Big Decliners

• Barnes & Noble Education (NYSE: BNED) -15.98%

College bookstore operator’s loss widens.

• Super Micro Computer (NSDQ: SMCI) -14.71%

IT provider expects Nasdaq de-listing.

• Harvard Bioscience (NSDQ: HBIO) -8.06%

Maker of scientific instruments announces top management changes.

Letters to the Editor

“How do midterm elections affect stocks?” — Kevin H. 

Uncertainty leading up to the November vote tends to sink stocks, but after the elections, Wall Street usually stages a relief rally. Consequently, it makes sense to buy into the autumn lows.

Questions about the nexus of politics and money? Drop me a line: mailbag@investingdaily.com

John Persinos is the managing editor of Investing Daily.