The White House

The Economics of Impeachment

As the impeachment process gets underway in the House of Representatives, President Trump has famously tweeted that the U.S. stock market will experience a severe decline if the process goes much further. This has led many money managers and financial planners to take a hard look at history to see if there’s truth to his assertion.

First the disclaimers: There is no guarantee that history will repeat itself, of course, so this may an interesting exercise but unrelated to our current situation. And, in modern times there have only been two impeachment processes (Bill Clinton and Richard Nixon), which is hardly a large sample size or significant track record.

To make matters even more complicated, the two impeachments produced very different market outcomes.

Let’s start with the impeachment of President Clinton in December 1998. Stocks fell the prior summer in anticipation of the release of the Starr report which detailed the case against the President. Specifically, from July 17 through September 9, 1998, the S&P 500 dropped 19.4%. However, the entire decline had been recovered by November 28, 1998 and during the actual trial from December 19, 1998 to February 12, 1999, there was a significant rally.  In all, from the date the House voted to start impeachment proceedings on October 8, 1998 to the Senate’s acquittal on February 12, 1999, the S&P 500 posted a remarkable 28% gain.

So, impeachments are great for the market, right? Not necessarily.

The downfall of Richard Nixon took the markets in the opposite direction. From the date that the newspapers reported the Watergate break-in on June 17, 1972 until the President’s resignation on August 8, 1974, the S&P 500 tumbled 23.7%.

You might wisely ask how much of this market impact could be attributed to the impeachment versus other factors? I’m glad you asked! It can be persuasively argued that economic conditions had more to do with the upturn and downturn than the political process of impeachment. In the 1973-4 period, the global monetary system was falling apart as the U.S. left the gold standard. Oil prices were spiking, leading to stagflation. On the other hand, heading into the Clinton impeachment, the U.S. economy was on fire and the market was flying high amid the tech boom, the advent of the Internet, and a balanced federal budget.

President Trump may believe that the stock market is all about him (and previous Presidents may have thought so, too), but the reality is that economic forces have much more influence on stock movements than the winds of politics. Keep this in mind when those winds fan your fears and you start to feel like you should “do something” that you might regret later.

It’s also helpful to remember at times like these that your goals should inform your investment decisions rather than short-term market movements—regardless of their source. If you’re concerned that you should be “doing something” or are uncertain if your portfolio is the right one for your goals, know that we’re happy to chat with you about both.

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