20 Dec 2019 The President Has Been Impeached
On Wednesday night, President Trump was impeached by the House of Representatives. The next step is for a vote to take place in the Senate, where a two-thirds majority is required to remove a sitting President. Given the Senate is controlled by Republicans 53-47, the likelihood of conviction is quite low.
President Trump is only the third President to be impeached. The other two are Andrew Johnson in 1868 and Bill Clinton in 1998. (Coincidentally, former President Clinton was impeached on December 19th, putting President Trump’s almost exactly 21 years later.) Former President Richard Nixon was well on his way to impeachment following the Watergate scandal before he saved everyone the time by resigning.
Naturally, impeachment carries with it a lot of emotions, not the least of which are related to money. How will impeachment impact the economy? The stock market? My industry? My job?
The answer to these questions is: no one really knows. Impeachment is, thankfully, a rare event and the lack of frequency translates to a lack of meaningful data which might otherwise give us a hint as to how our investments and the economy will fare over the short-term.
Looking back at stock and bond performance during Johnson’s and Clinton’s impeachment, as well as Nixon’s near-impeachment, isn’t too helpful. Stocks were flat after the vote to impeach Johnson took place, then moved up after his acquittal; US government bond prices were up after the vote but leveled off soon after his acquittal.
During Watergate, the US was already in a recession and the S&P 500 had fallen more than 30% from the previous highs. Just two months after Nixon’s resignation, stocks bottomed out and over the next two years would rise 60%. His resignation probably played no role in this.
In 1998, as Clinton’s trial was taking place, the US was at the tail-end of the greatest bull market ever. The three-month period surrounding his impeachment and acquittal saw a pullback in stocks, but it was short-lived.
James Carville coined the phrase, “It’s the economy, stupid”, and it’s as fitting now as it’s ever been. In the prior three examples, impeachment has served as the noise, but the signal was the economy. Thankfully, ours remains relatively healthy: Unemployment is low and wages are rising, GDP is lower than historical averages but still a healthy 2.1%, consumer spending, the primary driver of our economy, remains strong, and the Fed has stayed accommodating by lowering interest rates twice this year.
Yet, data may not calm your nerves. If not, what do you do? First, avoid the urge to overreact, especially if we experience some extra volatility in the coming weeks. While impeachment is a significant event, the likelihood that Trump will be removed is low and the odds of a major policy change are minor. The latter would probably impact the market more than the former.
Second, tune out the financial media. Again, impeachment is a big deal for our country and a stain on the Trump presidency, but the limited data we have from the past shows that its impact on the markets will probably be minimal. The financial media is largely entertainment so most of what you see or hear will be overstated. Ignore it.
Third, if you are concerned, let’s talk. Discussing the larger impact of this recent news can be helpful but talking about how it might impact your unique plans is more worthwhile.
Fourth, and most important, don’t let this take away from the Christmas season! Enjoy the time with your family and loved ones. Rest. Celebrate the New Year. The holidays are a wonderful, special time, and all of us at Beacon Wealthcare wish you a Merry Christmas and Happy Holidays!