Whistleblower Markets

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by Brad Houle, CFA
Executive Vice President

With the impeachment inquiry being announced this week, clients have been asking, “What does this mean for my investments?” The short answer: markets trade on economic fundamentals, not political headlines. The drama in Washington, while potentially having a great impact on our government and country, is a sideshow that might not be felt immediately in the financial markets.

The two most recent examples of presidential impeachment illustrate the same economic (not headline) focus. The impeachment process against President Richard Nixon and his subsequent resignation, resulted in the market declining roughly 25 percent during the two-year process. However, during the same period there was elevated inflation and an oil crisis: the real reasons for the market’s decline. In 1998, during the President Bill Clinton impeachment and acquittal, the market advanced roughly 26 percent that year. There was a significant decline in the market and fast recovery in the fall of 1998, but that was due to the Long-Term Capital Management Fund and Russian debt crisis. Despite these crises, the strength of the economy due to the internet productivity boom drove market returns, not the impeachment inquiry of Clinton.

As for the current impeachment proceedings, there will be days when the news flow will impact the market but mostly on a short-term basis. The truth is, markets hate uncertainty, and as soon as the probable outcome is known, the market will look through the events in Washington to the underlying economic data. Current data is showing that the economy is still growing but at a slower pace. The U.S. consumer, which composes 70 percent of the economy, is still confident, fully employed and has been enjoying wage gains. That said, the United States economy is in one of the longest expansions in history and we are certainly closer to the end than the beginning.

Week In Review and Our Takeaways

  • Financial markets trade on economic fundamentals, not political drama

  • The United States economy is still growing but growing at a slower pace

  • On Tuesday, the day in which Speaker Nancy Pelosi announced the impeachment, the market was up slightly

  • This week the stock market was down approximately 1 percent