Yesterday, House Speaker Nancy Pelosi announced the launch of a formal inquiry into the impeachment of President Trump. The stock market was not thrilled with this new gambit from the Democrats, and many investors are concerned that another lengthy, drawn-out investigation, reminiscent of the now defunct Russia investigation, will be a severe headwind going forward.
Not unlike when the House of Representative voted to impeach President Clinton in 1998, but the Senate did not convict, the Republicans have a majority in the Senate. In addition, the Constitution requires a two-thirds supermajority to convict a person being impeached. The Senate enters judgment on its decision, whether that be to convict or acquit, and a copy of the judgment is filed with the Secretary of State.
Investors of all stripes are weary of the political wrangling from both sides of the aisle, and this current action taken by Speaker Pelosi and the Democrats is just another instance of extreme partisan politics that has been in place now for a long time. The biggest worry for investors is the toll it could take on an already pricey equity market.
We decided to take a look back into the history books to see how past impeachment proceedings played out for the stock market. In stark comparison, when President Clinton was impeached, the stock market was still in the midst of the huge bull market of the 1990s. When President Nixon was facing an impeachment proceeding, the bears had control of things as Vietnam also lingered on.
On October 8 in 1998, when the House of Representatives voted to begin impeachment proceedings against President Clinton, the stock market fell almost 5%. However, the market recovered off from the lows that day to end down just 1.2%. Yet, by the time of Clinton’s actual impeachment, the stock market had risen a stunning 28%. Again, the Senate did not convict President Clinton and he served out the balance of his second term.
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The stock market pretty much disregarded the impeachment inquiry that began against President Nixon on February 6, 1974, but the S&P 500 then proceeded to drop a massive 30% between then and the time the president resigned from the office in August of 1974. In this case, due to the Watergate case and the mounting evidence that there had indeed been a cover-up of sorts, it looked very possible that the Senate would have convicted the president and he would have been forced out of office.
To many investors, this may just be more political saber-rattling, because as noted, the House could indeed vote for impeachment, but the issue would surely hit a dead-end in the Senate, unless there was some sort of massive smoking gun of wrongdoing.
The bigger concerns for investors now is that, plain and simple, the stock market is overbought, and many of the metrics that are used to judge valuations are at extreme levels. The S&P 500 actually has traded sideways for the past 18 months, and the inability to break out strongly above the 3,015 level has both technicians and portfolio managers concerned.
It makes sense for investors to review their portfolios as we are poised to start the final quarter of 2019 next week. Taking profits and either moving some cash to the sidelines or large-cap value stocks that pay solid dividends could be a timely move now. While the impeachment white noise could cause some upheaval, after years of Russian collusion charges, it also could be met with a yawn from many.
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