President Donald Trump tweeted last month in response to House Speaker Nancy Pelosi’s announcement of an official impeachment inquiry that the stock market would crash if he were booted from the White House.
If they actually did this the markets would crash. Do you think it was luck that got us to the best Stock Market and Economy in our history. It wasn’t! https://t.co/V0WGVWEWTN
— Donald J. Trump (@realDonaldTrump) September 26, 2019
Clearly, there’s a lot to unpack here. But it does raise the question: How might the stock market react if Trump actually were impeached?
To find out, we spoke with financial planners about stock market behavior during previous presidents’ impeachments and what we might expect today.
Johnson, Nixon, Clinton: Past Impeachments And The Effect On Stocks
When Andrew Johnson was impeached in 1868, the stock market didn’t exist as it does today. Stocks were mostly made up of banks and railroad companies, according to Forbes, and only an elite group of investors was allowed to trade them. The Dow Jones Industrial Average wouldn’t be established until 16 years later. So, looking at how the market behaved at the time of Johnson’s impeachment wouldn’t present an accurate comparison for modern times.
The next president to undergo impeachment proceedings was Richard Nixon. His impeachment inquiry was announced on Oct. 30, 1973, in response to his involvement in the Watergate scandal. Over the next month, the S&P 500 fell 11%. It tumbled 33.4% over the following year.
“On the surface, this suggests the impeachment had a major impact on stocks, but there were other major factors that had far more relevance for businesses and their stock prices,” said Jonathan Bird, a certified financial planner and owner of Farnam Financial.
“Nixon’s impeachment at the time was the least of our concerns.”
– Jonathan Bird, certified financial planner
He noted that the Arab oil embargo began that same October, which drove up oil and gas prices. Inflation had also been out of control, and the government was raising rates to double-digits in order to reverse it. The Bretton Woods international currency exchange system fell apart, and that November, one of the country’s worst recessions began. “In other words, Nixon’s impeachment at the time was the least of our concerns,” Bird said. Nixon resigned from office in August 1974 before he could be impeached, which was considered to be almost certain.
We saw the opposite market reaction during President Bill Clinton’s impeachment proceedings, which began in 1998. He was impeached by the House, but the Senate acquitted him in 1999, allowing him to finish out his term.
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In the months preceding the release of independent counsel Kenneth Starr’s report to the House on Clinton, the S&P 500 fell 19.4%. However, it took off soon after. “During this period, we experienced a rising U.S. stock market,” said David Barson, a certified financial planner and president of Barson Financial Planning. In fact, stocks were up an impressive 28% during the period between the start of impeachment proceedings and the Senate’s acquittal.
“Turns out, the investigation and House inquiries came during one of the best bull markets in history,” he said, noting that the U.S. fell back into a bear market over a year later. “Economists again attribute that bear market and the following recession to other factors, namely over-valued technology companies and internet stocks.”
Ignore The Headlines
So what might we expect if Trump is impeached? Probably not a whole lot, according to Ric Edelman, a financial advisor, author, syndicated radio host and co-founder of Edelman Financial Engines.
“When you focus on the daily headlines, which change constantly … you can be swayed radically in your outlook.”
– Ric Edelman, financial advisor
He said the stock market has so far ignored the impeachment conversation for two reasons ― the same two reasons as during Bill Clinton’s presidency. “First, there’s an awful lot going on in the world that has nothing to do with the political environment in Washington,” he said. Edelman explained that Wall Street is predominantly concerned with corporate profits and the economy. “And both of those are doing very well. We’re in the longest bull market in American history, corporate profits are an all-time high, unemployment is at a 50-year low, inflation is very low, interest rates are very low and they’re going lower, according to the Fed.”
So, in the face of all of this great economic news, there is no reason to believe that this impeachment proceeding is going to matter much. Not to mention, if Trump is impeached and it goes to a trial in the Senate, that’s going to take quite a while to happen ― likely well into the second quarter of 2020, according to Edelman. “That’s only six months before the next election, during which the president may be defeated anyway. Some are arguing this may simply serve as the acceleration of the fall election results.” Some estimate that the process could take even longer.
For all these reasons, he said, investors should not consider the impeachment inquiry in their investment decisions. “When you focus on the daily headlines, which change constantly … you can be swayed radically in your outlook,” Edelman said. “You can get very excited when you hear good news and very upset when you hear bad news. And that could cause you to buy and sell at the wrong time for the wrong reasons.”
Instead, investors should do what financial experts have always advised, regardless of the headlines: Invest according to your risk tolerance, regularly review your asset allocation to be sure it still matches your goals and maintain an emergency fund just in case the unexpected does happen.
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