By Howard Gold, MarketWatch
Speaker of the House Nancy Pelosi’s announcement that House Democrats would pursue an impeachment inquiry against President Trump may have rattled some nerves on Wall Street, but Asian markets and U.S. futures showed little change late Tuesday.
Maybe that’s because investors have gotten used to impeachment talk over the past few months. And with all the president’s threats of more tariffs and bluster about attacking Iran, they’ve tuned it all out as just more noise from the Twitterverse.
And even if House Democrats produce stone-cold proof that President Trump bullied Ukraine’s president to dig up dirt on rival and former Vice President Joe Biden and his son and vote to impeach, I can’t imagine the Senate marshalling the 67 votes necessary to remove the president from office. Heck, they couldn’t even do it in 1868 with President Andrew Johnson, who tried to undermine Reconstruction and protect former slave owners at every turn.
Past two episodes
And while we’re on the subject of history, back in August 2018, I looked at how the stock market did during the two most recent impeachment episodes: Watergate, which undid President Richard Nixon; and the Monica Lewinsky scandal, which tainted but did not remove President Bill Clinton.
As Watergate unfolded in 1973-74, stocks plunged in one of the worst bear markets of the post-World War II era. They bottomed less than two months after Nixon resigned rather than face impeachment.
Stocks also fell through the fall of 1998 as it became clear President Clinton had lied under oath about his sexual relationship with Lewinsky, then a 21-year-old White House intern. But they rallied as impeachment proceedings went through the House and then into a Senate trial, at which the president prevailed.
But both of these markets were affected much more by economic and market forces than by the political dramas in Washington, D.C.
In Nixon’s case, it was the runaway inflation of the 1970s, while for Clinton, it was the Asian currency crisis, followed by the final, euphoric phase of the 1990s dot-com bubble.
Let’s start by looking at a chart of the Watergate-era market, which I drew on Yahoo Finance.
I began on April 30, 1973, when top Nixon aides H.R. Haldeman and John Ehrlichman (remember them?) were forced to step down, along with Attorney General Richard Kleindienst. Stocks were volatile, but still held up as former White House counsel John Dean began testifying before the Senate Watergate Committee on June 25, 1973, and during the Saturday Night Massacre of Oct. 20 that same year. But they started falling that November and continued to drop through the president’s August 9, 1974, resignation.
Some of that was impeachment-related. But on Oct. 17, 1973, the Organization of the Petroleum Exporting Countries (OPEC) announced an embargo on oil shipments to countries that helped Israel during that year’s Yom Kippur war. That created shortages and long lines at U.S. gas stations, and oil prices nearly quadrupled over the next few months.
After rising 3.3% in 1972, the Consumer Price Index jumped 6.2% in 1973 and soared 11.1% in 1974. Thus began the Great Inflation of the 1970s, which ended the postwar Golden Age of the U.S. economy. The bear market that ran from Jan. 11, 1973, through Oct. 3, 1974, took the S&P 500 /zigman2/quotes/210599714/realtime SPX -0.20% down by 48%.
Now let’s look at what happened during the Clinton impeachment.
The chart shows how stocks rose into July 1998 as legal proceedings about the Lewinsky affair heated up and the president later testified before a grand jury. But they continued to fall, hitting a classic “double bottom” between late August and early October. Then the market rallied and never stopped even as the House impeached the president and finally, in February 1999, the Senate voted not to remove him from office.
Maybe after worrying about impeachment, investors decided it wasn’t going to happen and started buying. But during that summer and early fall, the Asian currency crisis morphed into a major crisis for the Russian economy, followed by the collapse of hedge fund Long-Term Capital Management and a bailout led by the Federal Reserve Bank of New York.
Then, on Nov. 13, 1998, theglobe.com went public at $87 a share, nearly 10 times its offering price of $9. That launched internet mania, which raged until the Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP +0.27% topped 5,000 and the bull market ended in March 2000.
In the Clinton scandals, as in Watergate, big economic and market forces played a much bigger role in driving stock prices than the president’s possible impeachment. Now, as under both Nixon and Clinton, the economy and stocks are capping a decade-long expansion and bull market. Impeachment didn’t cause the subsequent bear markets and recessions, but they certainly added risk to an already vulnerable market. I suspect that will happen this time, too.
Howard R. Gold is a MarketWatch columnist. Follow him on Twitter @howardrgold.