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Trump impeachment: How would it impact the markets?

By Connor Freitas

You may have seen Trump impeachment news plastered all over the media recently. In short, the US president is facing an inquiry after it emerged he had repeatedly urged his Ukrainian counterpart to dig up information that could hurt his political rival, Joe Biden. It’s serious because it is illegal to ask foreign powers for help winning an election — and Americans are set to go to the polls next year.

Trump impeachment: How would it impact the markets?

But how will the Trump impeachment inquiry impact markets? Have there been any other examples of impeached presidents in the USA? We’re going to try and explain everything in this handy guide.

How impeachment affects the stock markets

Back on September 24, stock markets had experienced sell-offs as Trump impeachment news first began to emerge. Word got out that House of Representatives Speaker Nancy Pelosi was set to give a news conference that afternoon, and an inquiry was anticipated.

Once it was confirmed, September 25 was much more of a mixed picture. Stocks began to rise when the White House released a memo that showed a rough transcript of Trump’s call with the Ukrainian president, with investors relieved that the document contained no suggestion of Trump threatening to withhold aid if his demands for dirt on Biden were not met. The US president also managed to distract from the impeachment news by striking an optimistic tone about trade talks with China.

At the time, Trump had warned on Twitter that the stock markets would crash if Congress managed to remove him from the Oval Office — and claimed this would undo all of his hard work in building “the best stock market and economy in our history”. He has railed against the proceedings multiple times since, tweeting at the beginning of October: “All of this impeachment nonsense, which is going nowhere, is driving the Stock Market, and your 401K’s, down. But that is exactly what the Democrats want to do. They are willing to hurt the Country, with only the 2020 Election in mind!”

It is worth noting that there have been other factors affecting the stock market at the moment. The drumbeat of a potential recession has been growing louder because of disappointing manufacturing data, and the ongoing uncertainty about the US-China trade war certainly hasn’t helped either.

Impeached presidents in the USA: What happened?

When it comes to how impeachment affects the stock markets, there have definitely been downturns following proceedings against presidents in the past. However, correlation doesn’t imply causation.

Excluding Trump, there have been a total of three impeachment inquiries in the US — two of them in the 20th century. When the Watergate scandal broke out in 1972, with President Nixon resigning once it looked almost certain that he was going to be impeached and removed from office, the stock markets were in freefall. In the year after the inquiry was announced, the S&P had tumbled by a third. However, this also coincided with dramatic increases in interest rates to curb inflation, a recession, and an oil crisis, with producers in the Arab world cutting supplies to the US.

Now, let’s fast forward to the late 1990s, when it emerged that Bill Clinton had lied under oath in order to conceal an affair with Monica Lewinsky. The S&P 500 had fallen by a fifth in the 60 days or so before the impeachment report was delivered to Congress. But again, analysts believe other factors, such as the demise of the Long-Term Capital Management Hedge Fund, were to blame. A bailout by Wall Street banks helped prevent the collapse of the world’s financial system.

How will the Trump impeachment inquiry impact markets?

It’s naturally difficult to predict what’s going to happen in the future – not least because we don’t know how long impeachment proceedings will take, whether Trump will be re-elected as president in 2020, and what state the US-China trade talks will be in.

There is a possibility that some investors will be concerned that some of Trump’s most radical policies – such as tax cuts and deregulation – could be reversed by his successor. However, it’s equally plausible that the stock markets will breathe a sigh of relief should the president be out of the picture. Protectionist policies and tariffs often spell bad news for companies with an international outlook, and ultimately affect the spending power of consumers.

The ongoing economic uncertainty, driven by multiple factors, has also had an impact on levels of capital investment – meaning businesses have been reluctant to splash the cash on ramping up production. In some ways, it could be argued that volatility could fall if impeachment proceedings go against Trump. For now at least, it looks like the markets have got plenty of other things to worry about.

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