Wall Street loves numbers: earnings, P/E, ROI, overhead resistance, book value, market share, and discounted cash flow, just to name a few. But as the House prepares to move forward with an impeachment inquiry of the president, Wall Street is watching two numbers: 67, and 88%. The former is the number of U.S. Senators who would have to vote to remove President Trump from office if he is impeached by the House. And 88% is Trump’s current approval level within the GOP. Until that number changes, it’s unlikely the Senate would find 20 Republican Senators to join 47 who caucus with the Democrats.
That may explain why the stock market went up the day after Speaker of the House Nancy Pelosi announced plans for a formal impeachment inquiry. Professional investors chose to focus more on the possible easing of trade tensions with China, as well as a trade deal with Japan that will help American farmers. That’s the history of the stock market and impeachment efforts. Investors ignore the politics unless and until those actions affect the bottom line.
While Congress has never removed a sitting president from office in its previous three inquiries, that statistic might need an asterisk since Richard Nixon stepped down before he most certainly would have been impeached and removed from office by a Democratically-led Congress, as Republicans gave up defending a president whose popularity had dipped below 30%. Since Andrew Johnson’s impeachment preceded the Dow Jones Industrials Index by almost 30 years, we’ll stay in the modern era with the two relevant comparisons: Richard Nixon and Bill Clinton.
There’s no question that the Watergate era stock market was ugly. From top to bottom in the early to mid-70s, the DOW Industrials fell more than 40%. But aside from the psychological pain of the drip, drip, drip of cover up evidence being revealed involving President Richard Nixon, there were economic issues at work as well. Inflation was starting to take hold, pushed in part by the burgeoning Middle East oil crisis; steel prices were going up; and wage and price controls were imposed by a Republican president. In fact, while the televised Watergate hearings began in May of 1973—mesmerizing a nation’s summer viewing—a recession began in November of that same year. Yes, there were many ways to be miserable back in the mid-70s.
“Our long national nightmare is over,” Gerald Ford said after taking the oath of office in 1974. But America was still in recession after Nixon’s resignation—it lasted until March of 1975—and was followed by a continuing rise in unemployment, rampant inflation, and zooming interest rates into the late 70s. (That was followed by the rise of disco music, which may or may not have contradicted Ford’s statement.) In fact, the bull market of 1982 might have been the actual end of the national nightmare, because it was then that the economy and stock market started moving in a sustained positive direction.
The stock market during Clinton’s impeachment
Compare that with the market during Bill Clinton’s impeachment saga, and you get the tale of two economies. The best of times and the worst of times. The worst being the 70s dynamics, and the best being the dot.com boom that drove some stock market prices to dizzying levels for several years before their eventual bust in 2000. But there was a clear lull in the financial markets in the second half of 1998. It coincided with the release of the Starr report in September and impeachment proceedings initiated by a Republican Congress. The great unknown was the impending November election.
The drive to capitalize on Bill Clinton’s impeachment backfired on the GOP in the midterms as they lost 5 seats in the House. Nancy Pelosi is fully aware of that history, which is presumably why she delayed getting on board the Democratic impeachment train until now. (It’s often ignored that Republicans took back the White House the next election, as Democrats did following Watergate.) It might have been a coincidence that the stock market started back on track shortly after the failed attempt to remove Clinton from office, but probably not. It was only the failed “new paradigm” fundamentals of the new-fangled dot.com stocks – revenue doesn’t matter; earnings don’t matter– that brought them back to earth in 2000.
To assess the impact of the impeachment inquiry on the markets, Wall Street will be watching 67, and 88%. For comparison’s sake, Richard Nixon’s support within the GOP fell to 54% during Watergate. There would have to be a huge shift in the current political landscape for that to happen now. Or perhaps a huge shift in the economic landscape. The fact is, Nixon’s support collapsed just the economy was heading into recession.
As Wall Street watches Washington, Washington will be watching Wall Street as well.