When the news broke about the House Democrats launching impeachment proceedings against President Donald Trump, financial markets chewed on some popcorn and said, “Oh, really? Interesting. So, now about the upcoming US-China trade negotiations and the latest Richmond Federal Reserve Bank manufacturing numbers…” In other words, investors are indifferent if a president is impeached unless the vice president is the exact opposite and wants to tear down everything the president achieved. Elections, on the other hand, are an entirely different bull and bear.
Here, Have an Impeachment
Politically and historically, impeachment is a major deal. For the financial markets, it is not monumental. Perhaps because it has not happened as often or maybe because presidents and vice presidents are united behind a single agenda (mostly).
In October 1998, when the House of Representatives voted to establish an impeachment inquiry against then-President Bill Clinton for “high crimes and misdemeanors,” the Dow Jones Industrial Average actually rallied 1,000 points in a single month. Submerged in the dot-com bubble, the leading stock index added as much as 4,000 points, suggesting that it did not care that the 42nd president could be ousted from public office.
During the impeachment hearings and subsequent resignation of former President Richard Nixon from October 1973 to August 1974, the Dow plunged by one-third. But this had more to do with the US economy being in a recession and suffering from stagflation than anything else. It turned out that former President Gerald Ford did very little to change Nixon’s big government interventionist initiative.
Now that House Speaker Nancy Pelosi (D-CA) is leading a doomed-to-fail impeachment crusade against President Trump, how are markets reacting? Well, they have not really reacted at all – and you cannot blame investors, either.
There are two things at play here. The first is that even if Trump were evicted from 1600 Pennsylvania Avenue and Vice President Mike Pence were to take his place, nothing would fundamentally change, especially with a presidential election a little more than a year away. The other is that the market likely is chalking up the impeachment probe to a case study in Trump Derangement Syndrome.
Put simply, nobody on Wall Street thinks it is going to happen. So, The Street is going about its business, concentrating on the trade war, the S&P/Case-Shiller Home Price index, and Institute for Supply Management (ISM) data.
The rest of the world is not that worried either as net capital inflows continue to remain healthy. Plus, the US Dollar Index, which measures the greenback against a basket of currencies, is at a three-year high and has advanced more than 3% year-to-date.
A Parallel Market
But that is not to say there are no parallels between the Clinton and Trump markets.
Clinton had the dot-com bubble and Trump has bubblemania (everything is in a bubble). For example, it is estimated that just one-quarter of companies filing for initial public offerings (IPOs) this year will record positive net incomes. The last time it was this low was in 1999 and 2000, when that figure was 28% and 21% respectively.
Both administrations presided over the yield curve inversion – short-term rates are higher than longer term bond yields – and a Federal Reserve cutting interest rates during the boom phase of the business cycle.
Impact on Markets of Warren and Sanders in 2020
Do you know what will have a bigger impact on financial markets? The 2020 election.
CNBC recently published an article titled “Wall Street Democratic donors warn the party: We’ll sit out, or back Trump, if you nominate Elizabeth Warren.” The piece highlights the consternation among big-money Democratic donors and fundraisers in the business world about a potential Sen. Elizabeth Warren (D-MA) administration.
The same worry likely surrounds a possible Sen. Bernie Sanders (I-VT) victory, too.
As Liberty Nation has documented, Warren and Sanders have proposed numerous policies that would not only target the rich but also harm the world’s largest economy and the public purse. Who would want to invest in a market that punishes success, penalizes the private sector, and transforms profit into a dirty word? Why park money into an economy that will just turn business away?
Right now, money markets are probably hoping for a Trump re-election. Or, if he fails to garner a second term, then they are rooting for former Vice President Joe Biden. Biden conceded that nothing much would change in his administration, suggesting that he is just paying lip service to the far-left fringe in the Democratic Party. The others, meanwhile, want to unravel the fabric of the country and make the United States into a progressive haven where men can have abortions, meat is taxed, and gas-engine automobiles are confiscated.
Fed Up With Politics
In the end, this is the way it should be. Despite the federal government being way too big and intrusive, it does suggest that financial markets are relatively immune from the toxicity spreading in Washington. Tax policy is far more important to investors than impeaching the president over sleeping with an intern or sending tweets. Besides, the New York Stock Exchange already concentrates way too much on every speech, every meeting, and every minute emanating from the chief swamp creature in Washington: the Federal Reserve. But that is another monster tale for another day. To impeach or not to impeach – that is not the question for equities.