As the impeachment process gets underway in the House of Representatives, President Trump has tweeted that the U.S. stock market will experience a severe decline if the process continues. Is he right? While no working crystal ball exists, let’s look back at what history shows.
In modern times there have only been two impeachment processes – Bill Clinton and Richard Nixon. These two impeachments produced very different market outcomes.
Clinton
After famously stating in January 1998, “I did not have sex with that woman,” President Clinton was formally impeached in December 1998. The Senate later acquitted Clinton in February of 1999. The S&P 500 declined nearly 20% from mid-July through mid-September 1998.
Could this be blamed on the impeachment? Perhaps, but in August of 1998 the Russian government had a currency crisis and defaulted on a massive amount of government debt. The Russian collapse also contributed to the collapse of a famous hedge fund, Long Term Capital Management, which sent ripples through Wall Street and their trading counterparties.
And, mind you, this was the time of the dot-com bubble and a balanced federal budget. Euphoria soon resumed and from September 1998 through March 2000 the S&P grew by nearly 60%.
Nixon
Newspapers broke the Watergate story in June 1972. From the time the story broke until Nixon’s resignation, the S&P 500 declined more than 20%. But again, it can be persuasively argued that economic and market conditions had more to do with the market returns than the impeachment.
In the 1973-74 period, the global monetary system was undergoing a major transition as the U.S. left the gold standard. Transition is a code word for uncertainty. Markets do not like uncertainty.
Oil prices were also spiking due to an Arab oil embargo, leading to stagflation and to lines at the pump to refuel cars – that most likely got about 7 blocks to the gallon back then.
To further confound things, the Nifty-Fifty – darling U.S. growth stocks that were believed to only be able to go higher at the time – were trading at nosebleed valuations. Xerox was trading at 49 times earnings; Avon at 65 and Polaroid at 91. The broader S&P 500 historically trades closer to 15 times earnings.
So rather than being brought down by Nixon’s impeachment, stock prices were more likely due for a gravitational pull back to some sense of normalcy.
The Silver Bullet
Perhaps you can detect the hint of sarcasm in the subtitle. There is no silver bullet when it comes to markets and investing.
Yet, the fact that the economy and markets are bigger than whomever is currently occupying the White House, may provide solace.
Sure, Presidents like to claim responsibility for economic growth, job creation and a good stock market while in office. And, of course, they disclaim the reverse and point fingers towards others – the Fed, Congress, etc. – that preceded or precluded them from accomplishing their grand visions. I suppose this is good politics even though I’d venture to say they know they’re not being truthful as these lies leave their lips.
