How Will the Impeachment Inquiry Impact the Stock Market?

It has been a very busy year for investment news. The trade war with China continues to drive market volatility, the off-again on-again Brexit discussions are producing economic anxiety in Europe, and tensions in the Middle East have caused crude oil price volatility around the world.

But the theme dominating many investors’ thoughts is the ongoing political divisiveness here at home. The political tension rose to a new level in late September 2019 with the announcement of the upcoming Trump administration impeachment investigation. Many investors reacted to this news with concern over what it could do to their investment portfolio. After all, how can impeachment hearings be anything but bad for the financial markets?

So far, the negative reaction by the stock market has been minimal. Why? After the announcement, many political pundits were quick to point out that, yes, it is likely that the president will be impeached by the House of Representatives due to its Democratic Party majority. However, an impeachment conviction in the Senate is much less likely given the required two-thirds vote and the slim voting majority held by the Republicans.

History also provides some context for the unique political circumstances. For example, the S&P 500 Index was weak during most of Richard Nixon’s tumultuous presidency in the first half of the 1970s. However, the weakness is often attributed to faulty economic measures such as wage and prices freezes, as well as the impact of the OPEC oil embargo, rather than the political implications of the Watergate scandal and the prospect of impeachment.

In addition, when President Clinton was impeached by the House of Representatives in late 1998 by a slim margin, the reaction by the markets was benign. In fact, the S&P 500 index rose 25 percent from early October 1998 (the beginning of impeachment proceedings) through mid-February 1999 when President Clinton was acquitted by the Senate.

There’s no doubt the political environment can be a key driver of the economy and financial markets. Several times throughout U.S. history, the House and Senate have passed landmark legislation that determined the economic fate of many industries and businesses.

Nevertheless, politics is only one of the key factors that drive the economy and financial markets. For example, the markets are currently very focused on the trade situation with China. Any progress on this front will be positive for investors. In addition, continuation of favorable monetary policy by the Federal Reserve provides significant economic support to many industries. Overall, the impeachment proceedings are not likely to have a positive impact on the economy and markets, but the impact will not necessarily be negative.

The information within this article is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Statements in this article are based on the views of BTC Capital Management and on information available at the time this article was prepared. This commentary contains no investment recommendations and you should not interpret the statements in this report as investment, tax, legal, and/or financial planning advice. All investments involve risk, including the possible loss of principal. Investments are not FDIC insured and may lose value.

*BTC Capital Management is a Registered Investment Adviser and is an affiliate of Bankers Trust Company. This article was created for Bankers Trust Company by BTC Capital Management in its capacity as sub-advisor to Bankers Trust.