The Mueller Risk Index: Wall Street's newest tool to navigate how much to freak out about the Russia probe

Alex Wong/Getty ImagesRobert Mueller.

  • As Donald Trump’s presidency unfolds, one firm is spearheading a new barometer to gauge what’s going on in Washington.
  • They call it the Mueller Risk Index.
  • The index measures political risk to the Trump administration, and the market’s resulting reaction, from developments in the special counsel Robert Mueller’s Russia investigation.
  • A string of bombshell developments over the last month have led to a surge in the index.
  • GeoQuant, the political risk consulting firm that developed the index, found that in the two days following an increase in the index, equity markets tend to decline and the dollar tends to rally.

As Donald Trump’s roller coaster presidency continues to unfold, one firm has developed a new barometer to help Wall Street navigate the turbulence.

The firm calls it the Mueller Risk Index.

Named after the special counsel Robert Mueller, the index was developed by the political risk consulting firm GeoQuant to help Wall Street gauge the impact the FBI’s Russia investigation has on the Trump administration and the markets.

GeoQuant uses a semi-automated process to test the market’s response to developments, both big and small, in the Russia probe. In particular, the firm uses a combination of artificial intelligence and human analysis to forecast the index about a month out.

Launched in February, the index uses a combination of breaking news, polling statistics, and legal filings to provide a daily reading of the danger to Trump’s hold on the presidency – stemming from Mueller’s actions. To gauge the effects a particular development will have on the index, GeoQuant relies on historical trends that serve as corollaries to current events – for instance, impeachment proceedings against President Bill Clinton in the 1990s.

The index also accounts for significant battles between US institutions to inform its forecast.

“Obviously we haven’t seen a historical battle of this scale, but ultimately this is an institutional issue where certain parts of the government, like the judicial and prosecutorial institutions, are pushing back on the executive branch,” GeoQuant CEO Mark Rosenberg told Business Insider. “That’s a pattern we’ve seen not just in the US but also in other similar markets, and it gives us data we can use.”

It also takes into account external events that could pose an overall risk to Trump’s presidency, even if they are not directly related to the Russia probe. In particular, two events that took place earlier this month led to a significant increase in the index: House Speaker Paul Ryan’s announcement that he will not seek reelection in the November midterms, and the FBI’s raids on the home and office of Trump’s longtime personal lawyer, Michael Cohen.

While neither event was connected to Mueller’s investigation, both increase the odds of political and legal instability in the White House. GeoQuant initially anticipated the index would remain stable throughout the months of April and May.

“Now, we’re seeing a marked increase and on a more long-term basis,” Rosenberg said.

The index’s surge hinges on both developments in the Russia probe, as well as the White House’s increasingly combative approach to Mueller.

‘The stock market loves Trump, but the dollar hates him’

Deputy Attorney General Rod Rosenstein tapped Mueller to spearhead the investigation last year after Trump fired FBI director James Comey.

So far, 19 people have been charged as part of the investigation. Five have pleaded guilty, including the former national security adviser, Michael Flynn, and the former deputy chairman of Trump’s campaign, Rick Gates.

In recent weeks, Mueller has signalled that he is coming close to wrapping up the obstruction-of-justice case he has been building against Trump since last year. He is also said to be focusing more on the central question in the Russia investigation: Did members of the Trump campaign collude with Moscow to tilt the 2016 race in his favour?

But as the Mueller Risk Index forecasts an increasingly dangerous political and legal climate for the president, markets have climbed steadily higher.

Rosenberg says to focus on a smaller trend.

“What we found was a very interesting pattern where, in the two trading days following an increase in the Mueller index – an event that increased risk to the Trump administration from the Mueller probe – the equity markets generally declined, and the dollar generally rallied a little bit,” Rosenberg said.

“The stock market loves Trump, but the dollar hates him,” he added.

After the Russia investigation closes, the Mueller Risk Index will likely morph into an impeachment index, which will measure the political risk to Trump based on Mueller’s conclusions and Congress’ and the American public’s response.

“The index may drop to zero, or it may skyrocket,” Rosenberg said. “It all comes down to the politics.”

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