By Matthew Gaude & Shawn McGuire
On September 24, 2019 House Speaker Nancy Pelosi took the extraordinary step of initiating impeachment proceedings against President Trump, accusing him of violating the Constitution in seeking help from a foreign leader to damage a political opponent. There’s been a lot of talk on what would happen to the stock market if President Trump was successfully impeached.
If you’re worried the stock market would crash after an event like this, you’re not alone. Trump infamously told Fox News in an interview: “If I ever got impeached, I think the market would crash. I think everybody would be very poor.” (1) Accusations like these are enough to make any investor nervous about the future.
But is there any reason to worry? Read on as we evaluate the facts and explain what we think a Trump impeachment would do to the stock market.
How Has The Market Reacted To Trump’s Impeachment Hearing So Far?
So far, the market has been completely unfazed by the impeachment investigation. In fact, it’s holding strong. Even after the impeachment hearings began, the S&P 500 closed at record highs thanks to better-than-expected earnings. (2)
Since the announcement of impeachment proceedings on September 24, the S&P 500 has advanced +9.01%, the Dow Jones Industrial Average has increased +6.66% while the Nasdaq 100 has increased 13.59%.
One of the reasons the stock market has increased is that both the House and the Senate votes will be very partisan which is very likely priced in to stock market expectations. In other words, the House of Representatives may vote to impeach President Trump, however the Senate, if voted along partisan lines, will vote not to remove President Trump from office.
What Does History Tell Us About Impeachments & The Stock Market?
We’ve had two recent impeachment proceedings in the past: Presidents Richard Nixon and Bill Clinton. Let’s look at how the stock market reacted to their hearings.
During Nixon’s impeachment process in 1974, the S&P 500 declined by 13%. At first glance, you may think Nixon is to blame for the decline, but this isn’t true. During Nixon’s impeachment hearings, the Arab oil embargo was going on, the country was entering into a recession, inflation was out of control, and the Federal Reserve was raising interest rates to combat it.
It was the economy, not Nixon’s impeachment proceedings, that pushed the stock market lower and lower. Markets rallied hard in 1975, with the S&P 500 gaining 37%, but that’s mostly because stocks had fallen nearly 50% in the 1973-74 bear market.
During Bill Clinton’s proceedings in 1998, the stock market increased by an impressive 28%. But his impeachment inquiry didn’t fuel this growth either. Instead, investors were riding one of the best bull markets in history thanks to the dot-com bubble. (3)
History proves that the economy is the biggest driving factor behind stock market performance. Economic factors such as earnings growth, the Federal Reserve, recessions, inflation, and trade wars have a larger effect on volatility than a possible impeachment. (4)
In terms of a president being impeached, we’re dealing with a sample size of two here (Andrew Johnson was impeached in 1868 but that was well before the modern stock market existed). There’s no way we can draw any concrete conclusions from this data nor can we use it to make predictions about how the current situation will play out. (5)
What Should We Watch Out For?
For now, the stock market will likely chug along as normal. We predict the 2020 election will play a much larger role in stock market volatility than Trump’s impeachment proceedings—especially since the Democratic candidate is still up in the air.
If Trump is acquitted, there will be a lot of uncertainty heading into the next election. And as history indicates, political uncertainty almost always leads to a volatile stock market. But this volatility usually evens out as investors and companies adapt to changing policies and new political leaders.
For now, ignore the headlines and don’t let impeachment talk influence your investing decisions. These news stories will change constantly, and following along will only lead to stress and doubt.
How We Help
At Live Oak Wealth Management, we specialize in helping investors create an investment strategy that aligns with their goals, needs, and risk tolerance—not what the news headlines are saying. If you’d like to learn more about how we can help you stay on track during political uncertainty, call our office at 770-552-5968 or email [email protected]. Or, if you prefer, you can simply click here to schedule an appointment online.
About Matthew
Matthew Gaude is an *investment advisor representative and the co-founder of Live Oak Wealth Management, a financial services firm in Roswell, Georgia. He serves the planning and investment needs of corporate employees, those approaching or in retirement, and 401(k) plan sponsors. Working first as a commodity broker and then as a Business Development Manager for a national broker-dealer in previous jobs, he has the insight and experience to help clients understand the complexities of the market and implement strategies to minimize risk. To learn more about Matthew, connect with him on LinkedIn or visit www.liveoakwm.com.
About Shawn
Shawn McGuire is a financial advisor and the co-founder of Live Oak Wealth Management, a financial services firm in Roswell, Georgia. He serves the planning and investment needs of corporate employees, those approaching or in retirement, and 401(k) plan sponsors. He has worked in financial services since 2002 in positions ranging from financial advisor to stock broker and portfolio manager. As a CERTIFIED FINANCIAL PLANNER™ professional, he is trained to help clients with virtually all their financial needs. To learn more about Shawn, connect with him on LinkedIn or visit www.liveoakwm.com.
Securities offered through American Portfolios Financial Services, Inc., member FINRA/SIPC. Investment advisory services offered through *American Portfolio Advisors, Inc., a SEC Registered Investment Advisor. Live Oak Wealth Management, LLC is independently owned and not affiliated with APFS or APA.
Any opinions expressed in this forum are not the opinion or view of American Portfolios Financial Services, Inc. (APFS) or American Portfolios Advisors, Inc. (APA) and have not been reviewed by the firm for completeness or accuracy. These opinions are subject to change at any time without notice. Any comments or postings are provided for informational purposes only and do not constitute an offer or a recommendation to buy or sell securities or other financial instruments. Readers should conduct their own review and exercise judgment prior to investing. Investments are not guaranteed, involve risk, and may result in a loss of principal. Past performance does not guarantee future results. Investments are not suitable for all types of investors.
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(1) https://www.foxnews.com/politics/trump-declares-market-would-crash-if-democrats-impeached-him
(3) https://www.huffpost.com/entry/impeach-trump-stock-market_l_5d9d071be4b06ddfc51003ad
(5) https://awealthofcommonsense.com/2019/10/does-the-market-care-about-an-impeachment/