There are no doubt plenty of reasons people should be concerned about U.S. President Donald Trump asking Volodymyr Zelensky, his counterpart in the Ukraine, to launch an investigation into the business dealings of the son of a potential political opponent, as we now know he undoubtedly did during a telephone conversation in July. It’s obviously bad form, it’s probably a national security threat (as the potential political opponent, Joe Biden, and other Democrats have averred), and it’s undoubtedly a gross lapse in judgment. But hey, if it took this to convince you that Donald Trump as president is prone to excruciatingly bad judgment, well, where have you been for the past three years?
There is also, no doubt, plenty of reason to be concerned about the Democrat-led House of Representatives launching a formal impeachment investigation into Trump’s bad behaviour. Such an investigation threatens to throw a wrench into the gears of the U.S. government, as it could consume not only a googolplex of hours on the nation’s political media, but also the time and attention of just about everybody who is supposed to be actually running the country. Depending on how far it goes and how long it lasts, the investigation will also drive a further wedge between conservatives and liberals, Republicans and Democrats, in an already deeply divided nation.
So, obviously, yes, folks are right to be concerned. But should investors (as investors, and not citizens of the world) be worried, too? Maybe not so much.
Granted, the short-term market reaction doesn’t provide much direction. U.S. indexes declined on Tuesday as it became clear that House majority leader Nancy Pelosi was going to play turnabout (she had previously been reluctant to go down the impeachment road) and proceed with an investigation. On Wednesday, however, the Dow Jones industrial average, the S&P 500 and the Nasdaq staged a recovery. So let’s call it a wash, so far.
That could change, of course. But if history is any guide, it might not change very much. Now, we’re working with an exceedingly small sample size here, because the House of Representatives has voted to impeach a president only twice. The first time was in 1868, when the House impeached President Andrew Johnson over his dismissal of the secretary of war; the second was in 1998, when the House impeached Bill Clinton over his less-than-forthcoming responses to the Monica Lewinsky scandal. Neither impeachment had any apparent, lasting impact on stock market performance; in fact, in both cases, the markets went on to rally, big-time, once the proceedings ended, for reasons that probably had nothing to do with impeachment in the first place.
It’s notable, though, how those proceedings ended — with acquittal by the Senate. Surely every impeachment is different, but what isn’t different this time around is that the Senate is controlled by the President’s party, and there is no indication — at least not yet — from Senate Republicans that they will contemplate anything other than what their predecessor Senate majorities have done every time a president has been impeached. Given how they have tied their political fortunes to Trump during his presidency — and looked the other way at his many indiscretions and missteps — it seems a lock that the Senate will vote to acquit, if it comes to that, and Trump will not be forced out of office.
Though he was never impeached, the case of Richard Nixon, who resigned from office in 1974 over Watergate, also doesn’t provide much cause for worry. During that scandal, markets did indeed tank — but there was enough other negative stuff going on (stagflation, oil crisis, etc.) that they didn’t really need Watergate to perform poorly. And they went on to stage a rally after Nixon resigned.
I’m not arguing that impeachments (or near-impeachments) are good for investors, just that they are probably irrelevant. The more pertinent question might end up being what impact the Trump investigation will have on the 2020 election. Some market commentators believe that it raises the chances of Democrats nominating Elizabeth Warren as their presidential candidate, and the prospect of a Warren presidency is generally taken to be a bad thing for business. I’m not so sure on that point, as you could also argue that the investigation — or rather, the proximate cause of the investigation — is good for Joe Biden’s campaign, as he will be able to more clearly stake out a moral high ground in a contest against Trump. It’s just too soon to tell.
It’s also not clear how much impeachment could change voter’s minds. I suspect those who love Trump will still love him, and those who hate him will just have more reason to do so. Apparently, the Democrats have made the political calculus that impeachment now will help their prospects of regaining the White House. We’ll see. If the investigation fizzles, it could well end up helping Trump in 2020.
Perhaps the best question for now is how the investigation will affect the administration’s ability to execute on its agenda. From an investor’s point of view, that’s particularly apt when it comes to the ongoing (never-ending?) trade negotiations with China. While he’s being investigated, Trump might be assumed by the Chinese to be a lame duck. They could well rag the puck until the election, in hopes that Tariff Man will just go away. That would, obviously, be a medium-term negative for investors concerned about Trump’s trade war and the impact on global growth and corporate earnings — at least until November 2020, when all will be resolved. Or not.
The point is, the start of impeachment proceedings against Donald Trump should probably not set off alarm bells for investors, at least not yet. Which is not necessarily cause for jubilation. After all, there are plenty of other things for them to worry about.
Copyright Postmedia Network Inc., 2019