This week, after months of urging from her party rank and file, the Democratic Speaker of the House, Nancy Pelosi announced the beginning of an impeachment inquiry targeting Donald Trump. Reaction to the news was, predictably and sadly enough, divided entirely along party lines. Nobody had seen the evidence, certainly not in relation to the “final straw” whistleblower scandal, but that didn’t stop them passing judgement. Democrats cheered what they saw as the beginning of the end for the President, while Senate Republican leader Mitch McConnell, speaking for the majority of his party, said they would not vote to convict.
That partisan bias illustrates perfectly why impeachment is such a flawed solution if and when a President breaks the law. It is an inherently political process, not a legal one, and the politics mean that a fair, considered judgement is virtually impossible. When both sides publicly stake out their position before an inquiry begins, it is almost impossible for them to later say "I was wrong," so everything becomes about who can spin things better, not right and wrong.
If I sound weary and disillusioned by the whole circus, that’s because I am. So, I turn to markets, which are ultimately moved by facts. Opinions can count in the short term, but in the long term, truth sets a market price. It doesn’t matter whether you believe a recession is coming or not right now: if one comes, stock prices will fall.
It was heartening to see that stocks barely reacted to the impeachment news.
The S&P 500 moved a little lower as rumors circulated that Pelosi would make a move, but once they were confirmed yesterday, the index recovered. From the chart, it seems that the 50-Day moving average (yellow line) was far more influential on price action than the news from Washington. If so, it gives me hope that traders are looking at anything but politics.
Really, nothing changed with the announcement. It is the beginning of an inquiry, not a conviction. Plus, given the position of Senate Republicans, nothing concrete will probably ever come of it. It may have an effect on the 2020 election, but what that effect will be is still uncertain. Pelosi’s reluctance to start the theater of an impeachment process has reportedly been because she sees it as a loser politically. As of now, it looks like there is no chance of a conviction by the Senate, which will allow Trump to claim that he was “tried” and found innocent of all charges. That will reinvigorate his voters and make it look as if the Democrats were motivated by spite, not any real crimes.
On the other hand, it ensures months of detailing the legally and constitutionally questionable (at best) actions of the president. That, most Democrats feel, will work in their favor.
Which of those views is correct will ultimately decide how the impeachment inquiry affects the market. During the impeachment inquiry for Richard Nixon, stocks lost around half their value, but as Bill Clinton was being investigated, they gained around a third. There were economic factors that influenced that, but it is hard to escape the conclusion that party politics played a part too.
President Trump is claiming this morning that if impeachment goes ahead, the markets will crash. The evidence, however, suggests that that is not the case. If he were to be convicted, maybe, but given the low chance of that happening, investors should do their best to ignore the politics and focus on economic fundamentals when making decisions.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Martin Tillier
Martin Tillier spent years working in the Foreign Exchange market, which required an in-depth understanding of both the world’s markets and psychology and techniques of traders. In 2002, Martin left the markets, moved to the U.S., and opened a successful wine store, but the lure of the financial world proved too strong, leading Martin to join a major firm as financial advisor.
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