Dems say impeachment...Republicans say never...and the Market says we only care about trade
We are now looking at upcoming impeachment hearings that were spurred from the recent allegations with the President and his calls to Ukraine. We won't delve into providing all the details as you can turn to any channel on TV to listen to all of the facts and be overwhelmed 24 hours a day. We shall not take a political side, either, and leave that debate to Congress. Our job is to uncover how the stock market reacts to political turmoil, which has been a constant theme for many years to be honest.
There have been only two impeachmemts of U.S. Presidents and Nixon was not one of them. Most people think that Nixon was impeached, but in reality, he resigned after the hearings began and before a final vote was taken. The two Presidents that were impeached were Andrew Johnson (1868) and Bill Clinton (1998), but neither was ever removed from office as the total vote count to impeach from office, in Congress, was not achieved.
We will see hearings begin soon in the House, and an expected decision to impeach, is likely, as the House is led by Democrats. The Senate will then start their political show and impeachment is likely to fail as the Republicans are a majority. Of course, no one can predict what will be uncovered, but you can expect party lines to be strongly held by both parties.
Now if we look at the stock market and its history with impeachments. The market has done quite well after the dust has settled whether we look at the period after Nixon or Clinton. In the chart below we see that the market reacted well after Nixon resigned. It might look like the market was falling as impeachment hearings began, but in reality, the U.S. was in the midst of a bear market that began in January of 1973.
Source: AETOLIA CAPITAL & KOYFIN
Now if we look at the period of the Clinton impeachment we will see much better results as the market kept rising throughout the trials.
Source: AETOLIA CAPITAL & KOYFIN
As our title implies and from the charts above, we can see that impeachments are more theater than substance when it comes to the market. Of course, we are not saying that a violation of Presidential power is not wrong. But the market, at this time, is focused on the trade war with China, Fed rate cuts, low global bond yields, and the upcoming earnings cycle. For example, today (8/27/19), the market sold-off, not because of the strong push for impeachment from the House, but for the announcement by the White House that they were looking to disallow investments into Chinese company stocks. That makes no sense at all, as there are over 150 Chinese companies on our exchanges with over $1 trillion in market cap. But most of all, these companies are in MSCI indexes that are owned by individual investors, pensions funds and institutions.
So in the end politicians will continue to battle wearing a blue or red super-person suit, but the market is completely focused on China and trade. As we have stated on many occasions, the unraveling of the trade war has much bigger consequences than a Congressional battle. We will say that we expect the market to be timid, though, as hearings progress and we are headed into the new earnings season that could throw some surprises at investors, if tariffs are weighing heavily on earnings and revenue.
If you have any questions or comments, please contact me.
Chief Investment Officer
AETOLIA CAPITAL LLC
3828 Kennett Pike Suite 212
Greenville, DE 19807