Why Didn't Impeachment Spark a Stock Market Downturn?
On the day that the impeachment inquiry was announced, the S&P 500 was down .83%, the NASDAQ down 1.46%, the technology industry down 1.6%, and basic materials down 1.5%. September 24th was a packed day, full of ups and downs for the market, and the impeachment inquiry was just one of a few other things on the minds of investors: for instance, the escalation in the trade war through a Trump United Nations Speech, the aftermath of the Saudi oil reserve attacks, and a significant downturn in the European markets. While the day of the announcement of the impeachment inquiry was a day of losses, in the month after the announcement, the market rebounded and grew steadily, picking up over half a percent. Almost a month later in late October, another news alert appeared, “A Divided House Endorses Impeachment Inquiry into Trump”. The market closed yet again in the negative with the S&P 500 down .30%, the NASDAQ down .14%, and oil down 1.87%. However, within a few days, the market rebounded from these losses. In each of these instances, the market seemed to react negatively to the impeachment news, but each time the drop was not nearly large enough to be considered panic nor was it not recovered within the next few days. This begs the question: how is it that major political news, like impeachment, barely touches our financial markets?
To explain the reaction of the market during the impeachment process, it is important to investigate what the stock market looked like during the Nixon impeachment and the Clinton indictment. During the Nixon impeachment proceedings, before his resignation, the stock market took a dive, with the S&P 500 dropping 33% in a few months. However, this significant drop was not only due to the impeachment proceedings, but also to the US oil embargo happening in the same year (1973). It is hard to extrapolate the effect of just the impeachment proceedings, given that the oil crisis happened within a month of the launch of the inquiry. During that month-long interlude, the stock market did drop, but the effects beyond that month are muddled. Turning to the late 1990’s, during the Clinton impeachment the stock market actually rose significantly. The S&P 500 gained close to 27% during the impeachment process. But just as with Nixon, the movement of the stock market was dictated by other events happening at the same time. Unemployment was low since jobs were being created domestically; government spending was cut, leaving room for money to be spent on domestic concerns; and low inflation rates.
Given the recent outcome in the impeachment proceedings, Donald Trump will remain in office and is free to run in the 2020 election. Since President Trump was acquitted, this leads me to believe that our financial investors will pay more attention to the Federal Reserve potentially dropping interest rates, the potential for a Chinese market crash with the outbreak of the Coronavirus, and the ongoing trade war between the United States and China rather than the result of the impeachment process.
As the public hearings began in early November, Democrats and Republicans sparred over Trump’s involvement and bribery of Ukrainian officials to investigate Joe Biden’s son, Hunter Biden. Most of the officials kept party lines as the testimony unfolded. When the articles of impeachment passed the House of Representatives the stock market was only minimally in the negative. The S&P 500 closed down 1.35 points, the Dow was down 26.76 points, and the NASDAQ closed above by 4.38 points. Even on the day in which Donald Trump was impeached, financial investors had little fear in his removal from office. The next step in the impeachment process was to send those articles to the Senate. Nancy Pelosi (D-CA) waited for a little over a month before handing the articles to Mitch McConnell (R-KY). Within this month the stock market had relatively normal trading days. Then came the beginning of the Senate hearing which began on Friday, January 31st, 2020. The day started trading in the negative, mostly due to concerns over the spread of the corona virus. By the end of the day, the Dow was down 603 points, the NASDAQ was down 148 points, and the S&P 500 was down 58 points. This concern was heavily attributed to the spread of this disease and the worry over China going into a depression. The impeachment trial was put on the back burner, at least in investors’ minds. As the trial progressed, Senators seemed to be sticking to party lines, even after the release of a chapter from John Bolton’s book which seemed to prove a quid-pro-quo. Toward the end of the trial, the vote for witnesses came to the floor. There was some hope for witnesses as four Senators from the Republican party were seemingly ambiguous on their vote. However, only two ended up siding with the democrats to hear from witnesses. With no witnesses, the trial ended relatively quickly.
Congress has just finished the impeachment proceedings, leading the Senate to acquit President Trump on both counts of impeachment after a close vote. This vote held party lines and will allow Donald Trump to both remain in office and run for re-election. The stock market in the beginning of February seems to have been steadily increasing as we enter the announcement of earnings from many large companies. This information is more likely to trigger investors’ trading than any lingering impeachment news. In addition, with the start of the Democratic primary, investors will be more concerned with potential presidential candidates eating into their bank account through proposed wealth taxes than whether or not there was a quid-pro-quo between the United States and Ukraine.
At the end of the day, investors only care about the fundamentals. If those elements favor positively on investors, then the stock market will continue to grow along the same pattern that we have been seeing. The stock market is unpredictable, and it also does not seem that impeachment news has made the stock market react in any predictable fashion. The conversations that investors are worried about are the inversion of the yield curve, potentially lowering interest rates, Chinese recession due to virus, the trade war, etc. Especially now that the trial is over, investors are no longer worried about the impeachment of Donald Trump. Investors were probably never too worried because they knew that few, if any, Republican senators would break with the party line – which meant that there was no real chance of Trump being removed from office. It is for this reason that the stock market has remained fairly level, and even continued its upward trajectory over this time period.
Sources
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Tappe, Anneken. “This is how the Nixon and Clinton Impeachment Dramas Affected Markets.” CNN Business. September 30th, 2019. Accessed November 6th, 2019. https://www.cnn.com/2019/09/29/investing/how-impeachment-affects-markets/index.html
“Oil Embargo, 1973–1974.” U.S. Department of State, U.S. Department of State, history.state.gov/milestones/1969-1976/oil-embargo. https://history.state.gov/ milestones/1969-1976/oil-embargo
Kevin, William B. “House Passes Resolution That Lays out Formal Rules of the Trump Impeachment Inquiry.” CNBC, CNBC, 31 Oct. 2019. www.cnbc. com/2019/10/31/house-passes-resolution-that-lays-out-formal-rules-of-the-trump-impeachment-inquiry.html.
Cole, Devean. “Republican congressman calls new details about Trump revealed in impeachment testimony ‘alarming.’ CNN, 17. Nov. 2019.
Moore, Simon. “What Key Recession Indicators Are Telling Us Today.” Forbes, Forbes Magazine, 20 Aug. 2019, www.forbes.com/sites/simonmoore/2019/08/20/what-key-recession-indicators-are-telling-us-today/#17db02682156.
