Trump Impeachment effect on the stock market: will it hurt?

On Wednesday, December 18, the US  House of Representatives voted to Impeach Donald Trump, making him the third president in US history to face removal by the Senate. He was accused of abuse of power and obstruction of Congress. We explore the impeachment effect on the stock markets, in a moving political landscape.
Latest news on Trump impeachment:

    The House has impeached Donald Trump for abuse of power and obstruction of congress. He will now be tried in the US Senate.
    The President Trump has claimed he is not worried, as the Senate would “do the right thing”.

Trump is accused of corruptly using his power to ask Ukraine to make investigations, aimed at discrediting his Democratic election rival Joe Biden, the former vice president.

The trial, which could end the Trump era, is expected to start early next year, but the exact timing is still uncertain. Whatever the Senate decides, impeachment will taint the Trump presidency.

The Democrats say impeachment is urgently necessary to stop a corrupt President further damaging the US. The Intelligence Committee chairman, California Democrat Adam B. Schiff said: “Over the course of the last three months, we have found incontrovertible evidence that President Trump abused his power by pressuring the newly elected president of Ukraine to announce an investigation into President Trump’s political rival. The president and his men plot on. The danger persists. The risk is real. Our democracy is at peril.”

However, Trump is highly unlikely to resign because of the pressure. “SUCH ATROCIOUS LIES BY THE RADICAL LEFT, DO NOTHING DEMOCRATS,” the president wrote on Twitter. “THIS IS AN ASSAULT ON AMERICA, AND AN ASSAULT ON THE REPUBLICAN PARTY!!!!”

His impeachment could redefine the political landscape. But how will impeachment affect the stock market?
Impeachment effect on stock market

Stocks after Trump impeachment: will markets be hit?

House of Representatives speaker Nancy Pelosi told Bloomberg Congress should investigate the allegations against Trump, regardless of how impeachment affects the stock markets.

“I said to the members, we cannot be undermining the markets here, but you can’t be the United States of the markets. It’s not that. It’s the United States of America,” she said.

Responding to Trump’s claim that “the impeachment hoax is hurting our stock market”, Pelosi counterd: “The markets have their own strength and their resilience.”
Stocks close at records, shaking off impeachment fears

All three major American stock market indices hit record highs on December 19, indicating that investors have few fears about the impeachment a day earlier.

The Dow Jones Industrial average surged up 138 points, or 0.5 per cent to close at 28,377. The S&P 500 market index climbed 0.5 to breach the 3,200 threshold. The NASDAQ Composite increased 0.7 per cent in value to reach 8,887.

lthough stocks shivered a little after the impeachment announcement, Investors were calmed by the knowledge that the President’s Republican party has majority in the Senate, which will decide the case.

According to Thomas Martin, senior portfolio manager at Globalt Investments: “There just aren’t the votes in the Senate to remove Trump from office. If there were, it would be much more meaningful for the markets. But it’s very partisan and will remain so.”

Wall Street sentiment has surged recently on a wave of encouraging earnings reports in consumer goods, car manufacturing and technology. Financial markets are also positive, heading into the year’s end, because of signs that the US-China trade war is winding down, with a “Phase 1” deal seen as imminent.
Previous presidential scandals in the US

Even if many investors think it unlikely that Trump will be removed from the office, that doesn’t mean that the political saga will not affect the US stock market.

in 1974, during the Watergate scandal, Richard Nixon resigned before the impeachment process was complete. During that time the S&P lost 32 per cent but recovered more than 5 per cent 12 months after his departure.

During Bill Clinton’s presidency in 1998, the stock market was volatile. From the start of impeachment proceedings the S&P 500 gained 23 per cent. Clinton was acquitted by the Senate in 1999 and the index rose by 19 per cent more in the 12 months after he left office in 2001.

Amid the continuing Trump impeachment inquiry, the S&P 500 is 22 per cent up on the year to date.

Effect on the 2020 presidential election

However, Trump, unlike Nixon or Clinton, is still his first term, and his re-election chances could be significantly hurt next year by the damage to his reputation, making a Democratic victory more likely.

Investors consider this riskier for the markets, as Senator Elizabeth Warren, who has overtaken Biden as favourite for the Democratic nomination, is viewed as the least market-friendly candidate.
According to Lori Calvasina, head of US strategy at RBC Capital Markets, “If Warren wins the nomination, the pain associated with a Democratic White House could occur well ahead of the election days. The combination of a Warren White House and Democratic Congress would be particularly challenging for stocks.”

An RBC survey found healthcare was the first sector at risk, followed by financial, energy, industrial and communications services, as they benefit most from lower corporate taxes and share buybacks that have been criticised by Democrats including Warren.

Calvasina advises investors to prepare for a close election. Political uncertainty has historically been associated with volatile stock markets. However, at present markets are heading upwards regardless of the political situation, as investors and business adapt to new political leaders.

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