The historic impeachment of President Donald Trump Wednesday so far has drawn a yawn from a stock market that has rallied to record highs in recent weeks, thanks to on a "Phase I" trade deal with China and solid U.S. job growth. The Dow Jones industrial average was up about 100 points in midday trading Thursday.
And Trump almost certainly won’t be removed from office by a Senate with a Republican majority.
Yet could impeachment become a downer for stocks if there’s a drawn-out trial in the Senate or the drama ultimately hurts Trump’s re-election chances?
If the two most recent impeachment investigations of U.S. presidents offer a guide, the answer is probably not. In both cases, the economy – one dismal, one robust – steered markets.
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“Investors look to fundamentals – economic growth, earnings, labor costs, and so forth – and none of these factors has been affected by impeachment,” says Brad McMillan, chief investment officer for Commonwealth Financial Network.
Yet this time may be different because Trump has rooted his agenda in pro-business policies that could be rolled back if impeachment damages his reelection chances, says Michael Reynolds, investment strategy officer for Glenmede, an investment and wealth management firm.
There have been three previous impeachment inquiries of U.S. presidents – Andrew Johnson in 1868, Richard Nixon in 1973-74 and Bill Clinton in 1998-99. Both Johnson and Clinton were impeached by the House but not removed from office by the Senate. Nixon resigned before his near-certain impeachment and removal.
Stock data from 1868 is sketchy and, in any case, show little impact from Johnson’s impeachment in February, according to Stock Trader’s Almanac and Schroders, an asset management firm.
So let’s focus on the Nixon and Clinton scenarios:
At first blush, the Nixon impeachment proceedings appear to have moved markets. The inquiry, tied to the break-in of the Democratic national headquarters at the Watergate hotel, was announced Oct. 30, 1973. The Standard & Poor's 500 fell 11% the next month, 15.6% in six months and 33.4% over 12 months, according to LPL Financial.
But wait. The Arab oil embargo also began in October, driving crude and gasoline prices higher. Inflation was rampant. A recession began in November. And the Federal Reserve was sharply raising interest rates to rein in inflation – a surefire wet blanket for markets.
“The economy was just dreadful,” says Art Hogan, chief market strategist for National Securities. That, he says – not the travails of Nixon, who resigned in August 1974 – is what sent stocks lower.
Clinton’s troubles, based on charges that he lied under oath to hide an affair, similarly seemed to douse stocks. In the two months leading up to independent counsel Ken Starr’s report to Congress in September 1998, the S&P 500 fell as much as 20%. But again, other forces were roiling markets in that period, particularly a Russian currency meltdown and the near-collapse of Long-term Capital Management, a massive hedge fund whose demise could have set off a global financial crisis.
Those developments, not the Clinton scandal, were the culprits, Hogan and Reynolds say.
What’s more, after the Clinton impeachment inquiry began on October 8, 1998, the S&P 500 rose 18.9% within a month, 41.6% in six months and 39.2% in a year, LPL figures show. Don’t credit Clinton’s acquittal by the Senate on February 12, 1999. Rather, stocks were riding a long bull market juiced by the late-1990s technology and productivity booms, the analysts say.
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Although Republicans are seeking a quick trial in the Senate, Democrats are pushing for an extended proceeding that includes witnesses.
“A long, drawn-out trial in the Senate could rattle individual consumers or business investors, causing harm to the economy” by rattling confidence, McMillan says. “The more confrontational a trial becomes, the greater the potential for damage.”
Assuming Trump isn’t removed from office by the Senate, it’s unclear whether impeachment will help or hurt reelection chances. About a third of Americans believe it will ultimately help while 25% say it will hurt and 37% say will make no difference, according to a recent CNN poll.
If impeachment eventually damages Trump’s standing in the polls, the effect on markets could be bigger than the Nixon and Clinton sagas. That’s because Trump’s tax cuts and sweeping deregulation have had a significant impact on the economy and corporate earnings, Reynolds says. Investors could worry that some of those changes may be reversed if impeachment paves the way for a Democratic victory in the 2020 election.
That prospect, he says, may spook some investors, particularly if the Democratic nominee is Elizabeth Warren, who has called for tax increases on businesses and the wealthy as well as "Medicare for All" and free tuition at public universities.
"You have to start pricing in that an alternative political paradigm could be a real possibility," Reynolds says.
At the same time, an impeachment viewed by Republican and independent voters as unfair could help propel Trump to victory.
Overall, Hogan is less concerned about the impact a Democrat in the White House may have on markets. Investors dreaded the possibility of a Trump presidency until he won and ignited a market boom, he says. And, he says, Warren’s agenda likely would be tempered by a politically divided Congress.
This article originally appeared on USA TODAY: Impeachment: Could it hurt stocks even if Trump isn't removed?