In case you’ve been unplugged or somewhere without TV or Internet access lately, then you already know that U.S. House Democrats have opened up an impeachment inquiry into whether President Donald Trump abused his presidential power by soliciting a foreign government to investigate a political foe.
We’re not going to get any further into the who’s, what’s, why’s, how’s, or debate whether the information we have now warrants the inquiry or not. But, we are going to spend some time talking about the potential effect that it could have on the stock market.
The stock market has had a bit of an up and down year due to a variety of different circumstances. While overall economic growth has still been strong this year and in recent years, a ramped up trade war with China has caused various fluctuations during certain periods in prior weeks and months. The stock market has also reacted to various other current events, and it’s not unreasonable to think that impeachment would have some sort of impact on it as well. In fact, we saw minimal declines in the Dow, S&P and Nasdaq Composite when House Speaker Nancy Pelosi made the announcement about the inquiry this past week.
So, what can we expect moving forward?
Let’s flashback to 1998 for a moment: the year a then-Republican controlled House of Representatives impeached then-President Bill Clinton for perjury. Republicans then are doing what Democrats are doing with their impeachment process — fighting an uphill battle. While Democrats have the party votes to impeach the President in the House, they’ll need to convince at least 20 Republican Senators to vote “yes” if the President is to be removed from office if impeachment goes to a Senate trial. That’s similar to 1998, when a Democratic Senate acquitted Clinton.
Now, after the House voted to impeach Clinton, the three big indexes (Dow, S&P and Nasdaq Composite) took similar dips to the minimal drops they experienced last week. In 1998, however, the dips didn’t last long, as the indexes recovered and saw double-digit gains by the time the House held the vote on impeachment. While there are different factors at play in the stock market now compared to 1998, many economists envision a similar situation playing out. And if it does, you may want to start buying up stock soon if not now.
How the stock market reacts will also depend largely on how investors view the impeachment. Will they see it as a circus sideshow, like they did back in 1998 when there was little chance that Clinton was going to be removed from office? This view on the entire situation helped fuel the stock market growth. Or, will the market view it as something serious, and believe that there’s a legitimate chance that President Trump could actually be removed?
If investors take the impeachment seriously, then markets are likely to suffer as a result due to the uncertainty of what comes next. We won’t know how serious investors take the impeachment inquiry until more information about the situation comes out. This is likely to intensify in the coming weeks.
Keep in mind that when the Founding Fathers created the checks and balances that would be placed on government officials, they always viewed impeachment as a last-ditch effort. Impeachment is typically unpopular with the American people, because it essentially undoes what voters already did by a fair and true process.
It was even implied in The Federalist Papers that if it ever came to impeachment, it would ultimately become a battle between whatever political party was in power at the time. President Richard Nixon was the exception, with many of his Republican colleagues indicating that they viewed his indiscretions as serious enough to remove him from office. In turn, Nixon resigned before he could be removed. Clinton didn’t, because he knew he was almost surely going to be acquitted. President Trump is likely to be acquitted as well if things proceed, and if this happens, the stock market should be fine. But if enough Senate Republicans indicate issues with what occurred, then we’ll likely see the stock market become more volatile until government again stabilizes.
