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Will Impeachment Kill The Bull Market?

Donald Trump
photo by Gage Skidmore

In light of recent legal developments involving President Trump’s former attorney Michael Cohen and his former campaign chairman Paul Manafort, many investors have begun considering the possibility that the president may eventually face impeachment.

In response to this line of speculation, Trump told Fox News last week, “I don’t know how you can impeach somebody who has done a great job.” He added, “I will tell you what, if I ever got impeached, I think the market would crash. I think everybody would be very poor.”

Regardless of whether you agree with the president’s evaluation of his performance in office, the second half of his statement is worth addressing. Some are now wondering whether Trump’s departure, through impeachment or resignation, could indeed roil the stock market or damage the country’s economy. While you can always find potential future events to worry about, the financial impact of a transition to President Mike Pence shouldn’t be one of them.

I am not the only financial professional reassuring nervous investors on this subject, and you may be relieved to hear that many of us agree on the matter. While there are certainly potential risks out there that could impact both stock prices and the overall domestic economy, impeachment isn’t one of them.

First of all, the odds of impeachment proceedings are still very low, despite Cohen’s decision to plead guilty to federal crimes and Manafort’s conviction on several charges of financial fraud. It would take a lot more than what we’ve seen so far to trigger impeachment. This is especially true if the Republicans hold on to both houses of Congress after the midterm elections in November. While Democrats taking control of the House of Representatives is likely, the so-called “blue wave” is not a sure thing.

Even if they do take control of the House, Democrats may decide against pursuing impeachment, especially absent any new information. As the staff of FiveThirtyEight recently observed, very few Democrats are campaigning on promises to impeach the president, or otherwise discussing the possibility. Nancy Pelosi, likely the next Speaker of the House, has been blunt in all but ruling out a push for impeachment if her party wins control of the chamber. The FiveThirtyEight analysis concluded: “… the talk of impeachment looks more like a Republican strategy to excite the party’s base ahead of the November elections than a realistic assessment of what will happen next January.”

If the House did decide to pursue impeachment, it is still unlikely that the Democrats could secure enough Senate seats to actually remove Trump from office. Doing so would take 67 votes, meaning something like 17 Republican senators would have to vote with Democrats to eject Trump. So the odds of impeachment are low, and the chances of Trump being removed from office are even lower.

For the sake of argument, however, let’s imagine a scenario where Congress did remove Trump from office, perhaps due to the discovery of previously secret behavior or some future action we cannot currently anticipate. If we all woke up one morning and discovered that Mike Pence was our new president, what would the likely financial impact be?

For stocks, the most reasonable way to address the question would be to consider historical examples. Unfortunately, there is no past instance that is truly useful here. The two closest parallels come from the presidencies of Bill Clinton, who was acquitted by the Senate after being impeached by the House, and Richard Nixon, who resigned before the House could vote to impeach him. While many commentators have looked to the performance of the stock market in both cases in an attempt to predict what a Trump impeachment might look like, in both time periods major macroeconomic issues had much more impact on stocks than presidential politics. In Nixon’s case, it took the form of the 1973 oil crisis; the tech stock-fueled bull market of the late 1990s overshadowed the Clinton proceedings.

To the extent presidential impeachment or resignation affects the markets, evidence suggests that it is not the actual process that upsets investors, but the associated uncertainty. But while investors may be uncomfortable during a transition of power, President Pence could ultimately have a positive impact on the stock market and the U.S. economy. Pence is inarguably a more traditional, establishment Republican than Trump, with a much less volatile track record. Even if the impeachment process itself caused initial market disturbances, Pence would likely be able to calm markets relatively quickly. After all, if Pence becomes president, the major tax reform that Republicans passed late last year certainly isn’t going anywhere. Nor is the Trump administration’s push for deregulation.

As for the broader economy, the United States’ economic fundamentals are strong, and Pence taking over would not change the foundation beneath them. The Wall Street Journal recently reported that companies have reported some of the strongest earnings since the Great Recession; according to data from Thomson Reuters, profits at S&P 500 companies jumped approximately 23.5 percent from the beginning of April through the end of June. Pence is not going to undercut or roll back the conditions that have supported this growth. It is also worth noting that the economic recovery and our current bull market significantly predate the Trump administration. Trump inherited a growing economy with positive momentum. So would Pence.

One aspect of White House policy could vanish in a transition from Trump to Pence, however: Trump’s commitment to upending global trade using tariffs. Other than Peter Navarro, the director of the White House National Trade Council, few people within the administration seem terribly enthusiastic about Trump’s aggressive tariff regime. Some commentators, including Forbes contributor Peter Cohan, have argued that if Pence chose to wind down Trump’s protectionist gambits, an impeachment could ultimately boost the stock market.

It’s impossible to know whether Trump will ever face impeachment and, if he does, whether the process would go smoothly. And of course Trump’s removal or resignation could have many other ramifications. But barring anything unforeseen, I feel confident assuring investors that the sky is in no way falling in light of the current headlines. As far as financial concerns go, a changing of the guard at the White House is unlikely to have long-term ill effects.

Vice President and Chief Investment Officer Paul Jacobs, of our Atlanta office, contributed several chapters to our firm’s book, Looking Ahead: Life, Family, Wealth and Business After 55, including Chapter 12, “Retirement Plans;” Chapter 15, “Investment Approaches and Philosophy;” and Chapter 19, “A Second Act: Starting a New Venture.”

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