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December 16, 2019 at 02:01 PM
Fed Chair Jerome Powell (left) and President Donald Trump at the White House (Photo: Bloomberg/Olivier Douliery)
On Friday, the House Judiciary Committee voted to advance two articles of impeachment against President Donald Trump to a vote by the full House of Representatives — marking just the fourth time in U.S. history that the full House has been set to consider impeaching a president.
How did the markets react? They were really watching news about the trade deal with China, but the major indexes ended the day higher: the Dow Jones industrial average was up nearly 221 to 28,132; the S&P 500 rose close to 27 at about 3,169; and the Nasdaq gained 63 to hit 8,717. Meanwhile, the fear-gauge CBOE Volatility Index (VIX) dropped 7% to end the day at 13.94.
This current “political shock” or “frenzy” driving headlines in Washington raises the question of whether we should care, points out Commonwealth Financial Network Chief Investment Officer Brad McMillan. “As citizens, we certainly should,” he said in a report on Friday. “As investors — no.”
Late this weekend, the House Judiciary Committee released a 658-page report describing the two articles of impeachment against the president. If the House votes to impeach, the trial will take place in the Senate, where Trump is widely expected to be acquitted.
Why Not Care?
Though the impeachment process has been chugging along for months, it “hasn’t derailed the economy or markets, both of which have shown continued slow growth,” McMillan explained. “From an economic standpoint, impeachment simply hasn’t mattered — and it isn’t likely to.”
Investors, of course, focus on the fundamentals like economic growth, earnings and labor costs, “and none of these factors has been affected by impeachment,” he added. “Looking at the risk this way, I think it makes sense that the markets have not been derailed by the impeachment process.”
What Does History Show?
Earlier impeachments rattled the markets over limited time frames, according to McMillan.
“But even so, the markets ultimately responded to the underlying economic facts. When, for example, the House Committee on the Judiciary approved articles of impeachment against President Nixon, the news knocked the markets down,” he explained.
At the time, of course, the country was experiencing a terrible economic situation, so poor market performance “would likely have happened regardless,” McMillan said.
President Bill Clinton’s impeachment trial did rattle the markets, “but they recovered and moved higher in response to strong economic fundamentals,” he said.
History, thus, tells us that while “we might well see some volatility from the pending impeachment … over time — and not that long a time — the markets are likely to stay in line with the fundamentals, which remain positive overall,” the CIO said.
(Only two U.S. presidents have been formally impeached by Congress — Andrew Johnson in 1868 and Bill Clinton in 1998; no president has been been removed from office through impeachment. Richard Nixon, in 1973, was the only other president besides Trump to face a formal impeachment inquiry in the House.)
