Would A Trump Impeachment Damage The Stock Market?

Dec. 4--No matter the decade or market conditions, impeachments don't hurt share prices over the long term.

Hard to believe, but true.

Two U.S. presidents have been formally impeached by Congress: Andrew Johnson and Bill Clinton.

In addition, two other U.S. presidents have faced formal impeachment inquiries: Richard Nixon (who resigned before the House vote) and Donald Trump. So far, no U.S. president has been removed from office through the full impeachment process.

Here's a brief look at the returns during that portion of Nixon's presidency.

Between the start of the Watergate trial, the threat of impeachment, and his resignation, Nixon presided during a drop of nearly 32% in the S&P 500 benchmark stock index, partly due to a recession. And in the 12 months following his departure from the White House, the index recovered more than 5%.

While it's hard to stay positive in the short term, impeachments rarely have a lasting impact, according to Dan Roccato, president of Quaker Wealth Management in Moorestown.

"Impeachment has a long-term impact on politics, but not markets," he said. "Traders have the attention spans of a gnat, but investors are better served by ignoring short-term gyrations" and "should always separate politics from portfolios."

Under Clinton, the stock market was volatile, partly due to the Asian financial crisis in 1998 and the failure of hedge fund Long-Term Capital.

But from the start of Congress' inquiry until impeachment, the S&P 500 actually rose 23%, and gained 19% more in the 12 months following his impeachment. The U.S. was also experiencing the first dot.com boom and an economic expansion.

What about today's stock market?

The House of Representatives formally launched an investigation and impeachment inquiry into President Trump on Sept. 9.

And during the ongoing impeachment inquiry, the S&P 500 has wobbled, mostly on concerns about the trade war with China and the potential for a recession in 2020. The index itself is up 22% through Dec. 2.

The market continued notching new highs in November as October worries over Brexit, impeachment, tariffs and slowing growth receded. With a month to go, 2019 is shaping up as one of the best investment years of the decade, as both stocks and bonds have generated positive returns.

Still, the Dow was down as much as 400 points combined, on Monday and Tuesday, after Trump's tweet Monday regarding steel and aluminum tariffs on Brazil and Argentina and no deal in sight with China.

However, "the market will come back just as it has before in the last two years of news and tweets on China-U.S. trade deliberations. We still think a phase one deal is coming, although it is likely to go down to the final deadline of December 15. Markets are trapped by the changing news, but this is exactly like a reality TV show where the outcome continues to be drawn out to the bitter end. We can't not watch," wrote Chris Rupkey, chief financial economist at MUFG, Mitsubishi UFJ Financial Group, in New York, in a note to clients.

"The president can't afford for stocks to crater, that much is clear with an election hanging in the balance less than a year away. Our best guess is that the stock market is oversold on a Trump trade deal tactic that could still bear fruit and bring about an agreement" by the Dec. 15 tariff deadline.

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