Could Impeachment Be Good for Investors?

Charts, Commentary, News, Stocks

Impeaching a President with the possibility of removal from office is by no means great for the country. However, it may not be so horrible for the stock market or investors if history is any guide. We first touched on this over two years ago here on the blog and now that much has transpired and the US House of Representatives is now proceeding with drafting articles of impeachment we figured it was a good time to revisit the history (albeit limited) of market behavior during presidential impeachment proceedings. The three charts below really tell the story.

During the Watergate scandal of Nixon’s second term the market suffered a major bear market from January 1973 to October/December 1974 with the Dow down 45.1%, S&P 500 down 48.2% and NASDAQ down 59.9%. Sure there were other factors that contributed to the bear market such as the Oil Embargo, Arab-Israeli War, collapse of the Bretton Woods system, high inflation and Watergate. However, shortly after Nixon resigned on August 9, 1974 the market reached the secular bear market low on October 3 for S&P and NASDAQ and December 6 for the Dow.

Leading up to the Clinton investigations and through his subsequent impeachment and the acquittal by the Senate the market was on a tear as one of the biggest bull markets in history raged on. After the 1994 midterm elections when the Republicans took back control of both houses of Congress the market remained on a 45 degree upward trajectory except for a few blips and the shortest bear market on record that lasted 45 days and bottomed on August 31, 1998.

Clinton was impeached in December 1998 and acquitted in February 1999 as the market continued higher throughout his second term. Sure there were other factors that contributed to the late-1990s bull-run such as the Dotcom Boom, the Information Revolution, millennial fervor and a booming global economy, but Clinton’s personal scandal had little negative impact on markets.

It remains to be seen of course what will happen with President Trump’s impeachment proceeding and how the world and markets react, but the market continues to march on. If the limited history of impeachment proceedings of a US President in modern times (no offense to our 17th President Andrew Johnson) is any guide, the market has bounced back after the last two impeachment proceedings and was higher a year later. Perhaps it will be better to buy any impeachment dip rather than sell it.

image
image
image

Learn more at Stock Traders Almanac


As always, please use protective buy and sell stops when trading futures and options.

Disclaimer: Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. Any decision to purchase or sell as a result of the opinions expressed in the forum will be the full responsibility of the person(s) authorizing such transaction(s). BE ADVISED TO ALWAYS USE PROTECTIVE STOP LOSSES AND ALLOW FOR SLIPPAGE TO MANAGE YOUR TRADE(S) AS AN INVESTOR COULD LOSE ALL OR MORE THAN THEIR INITIAL INVESTMENT. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.

Follow MrTopStep in our Social Space:

Stock Trader's Almanac (1283 Posts)

Jeffrey A. Hirsch is Editor in Chief of the Stock Trader’s Almanac. His latest book "The Little Book of Stock Market Cycles" (Wiley) was published in August 2012. As a frequent participant in the MrTopStep IM-Pro Trading Room, he shares trading insights with our other professional traders and new traders eager to experience the power of collective intelligence. Join us today and get the edge only social trading can give you.


Leave a Reply