Everyone knows that the markets hate uncertainty but they're not so finicky when it comes to impeachment.
President Donald Trump has claimed on several occasions that "the markets would crash" and "everybody would be very poor" if Democrats moved ahead with impeachment. The latest warning came after a Sept. 24 stock market selloff that coincided with House Speaker Nancy Pelosi, D-Calif., declaring the formal start of an impeachment inquiry.
Contrary to warnings of doom and disaster, the Dow Jones Industrial Average and S&P 500 Index closed at record highs Wednesday, just a few hours after the House concluded its first public impeachment hearing. Investors appeared unfazed by the nearly six hours of testimony from the U.S. ambassador to Ukraine William Taylor and senior State Department official, George Kent. There was much more attention on China and a possible trade deal than Ukraine and a possible quid pro quo.
Amid a series of tweets slamming the impeachment process, Trump proclaimed, "Hit New Stock Market record again yesterday, the 20th time this year, with GREAT potential for the future."
Historically, the markets have had a varied response to presidential impeachments. Research looking at market performance during past impeachment hearings show a mixed picture. According to recent analysis by LPL Financial Research, "impeachment inquiries can cause a good deal of volatility." At the same time, it's difficult to tease out the effects of the political process from larger trends and market-shifting events. In other words, correlation is not necessarily causation.
For example, stocks fell by 20% before the House launched its impeachment inquiry of President Bill Clinton in October 1998. That decline also coincided with the Russian financial crisis and the collapse of the massive, $126 billion-dollar hedge fund Long-Term Capital Management. On the opposite side, the stock market posted huge gains throughout the Clinton impeachment proceedings and Senate acquittal—a period that coincided with the tech-boom and U.S. federal budget surpluses. LPL Financial senior market strategist Ryan Detrick noted that the S&P 500 gained 41.6% six months after the Clinton impeachment, "suggesting markets might care more about the state of the economy than hearings out of Washington."
In the case of President Richard Nixon, his impeachment coincided with one of the worst bear markets in U.S. history. The Dow Jones lost nearly half of its value between January 1973 and December 1974, a period that encompassed the Watergate investigation, House impeachment investigation and Nixon's August 1974 resignation. On top of the political turmoil in Washington, there were a series of events that rocked the U.S. and world economy. The Bretton Woods fixed exchange rate system ended and Nixon decoupled the U.S. dollar from gold. The major oil-producing nations of OPEC halted exports to the United States causing gas shortages and price increases. Anti-inflation policies drove the U.S. economy into a recession that outlasted the Nixon administration.
In a 2017 study, Craig Botham an emerging markets economist with Schroders noted that in Nixon's case, there was a slight rally after the start of televised impeachment hearings and another bump in the months after Nixon resigned. Botham wrote that it is "reasonable to suggest that the resignation of President Nixon provided a catalyst." He added that "investors might have welcomed a change in economic policy, as well as an end to uncertainty."
The Schroders study looked at the three impeachment proceedings of Clinton, Nixon and Andrew Johnson and concluded, overall, that "there appears to be no obvious pattern" between market performance and presidential impeachments. There is some indication that impeachment may cause higher market volatility, but Botham described the evidence for that as "weak, rather than compelling." The study included data from the impeachment and removal of Brazil's president in 2016 and South Korea's president in 2017.
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