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2 months ago
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What Might Happen To The Markets If Trump Is Impeached?

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“I think that if I ever got impeached, the market would crash. Everybody would be very poor,” said President Trump in a recent interview with Fox News.  The president added, “I don’t know how you can impeach somebody who’s done a great job.”.

Whew.

There has understandably been a lot of impeachment talk lately. That’s understandable given the amount of legal trouble his circle of current and former advisors is facing. The most recent person to go down was Trump’s one-time lawyer, Michael Cohen, who pleaded guilty to eight criminal charges, including breaking campaign-financing laws. Nevertheless, Trump’s approval rating has remained relatively stable, says research from the Pew Research Center.

But I’m here to talk about economics first, and then we’ll explore the politics.

The president made a bold statement about how the economy would fare in his absence. And, while we frequently talk about how Washington politics can influence the economy, this is the rare instance where we’ve gotten commentary from the White House on the fate of the market.

Let’s dig in.

What might happen to the markets if Trump is impeached? There is no question that there could be a negative outcome.

President Trump has stated there will be a “crash,” but a crash could mean 10%, 20%, or 30% depending on how long the impeachment proceedings and removal take to play out.

I believe, however, that the assertion that markets will crash is a stretch. History is not on Trump’s side if we consider what happened during President Bill Clinton’s impeachment proceedings. During that time, we were in a similar spot to where we are now: a solid stock market, a strong economy.

On January 27, 1998, Kenneth Starr opened the grand jury probe into Monica Lewinsky’s allegations, to which Hillary Clinton responded by stating a “vast right-wing conspiracy” had fabricated the allegations. The market rallied. This remained true until the summer, at which point there was a sell-off. But, the Starr investigation didn’t prompt the selling frenzy; the reasons were the Long Term Capital Management Fund Crisis and the Russian Financial Crisis.

In September of the same year, Starr sent his report on possible impeachable offenses to Congress. For the next month (until the House moved on the process), the market had a 10% negative stretch – a true correction. From October until the House Judiciary Committee impeached Clinton on December 9, the market improved. And by the time the Senate acquitted him on February 12, 1999, the market had rallied 25%.

Now, back to President Trump – will the market tank if he gets impeached? Will we all be poor? Unlikely. The markets could fall 10% from the uncertainty, maybe even 15%, but in the end, I believe we would experience a scrape not a deep wound to the markets.

Besides, for President Trump to get impeached Democrats would have to take over Congress. Not just the House (which could happen), but the Senate, too (which probably won’t happen).

For the Dems to take control in the House, they need to pick up 23 seats. There’s a ton of predictive analysis out there on this topic. Right now, data projections show that the GOP will likely lose 20 seats – just shy of the 23 needed.

If you look at the special election results, however, even though only one Democrat has won out of nine, there has been a 15%-point swing towards their favor. Looking at this number as an indicator, Republicans could lose as many as 70 seats to the Dems. In my opinion, this is an outlandish stretch.

Our research team has blended these two indicators, and the data generated indicate that between 30 and 35 seats could change over. If we look at the betting odds right now on Predict-it (the online site where people make economic bets on political outcomes), there is a 65% probability that the Dems will win the House.

As a refresher of your high school civics class, under the Constitution, the House would have to initiate impeachment proceedings. To bring impeachment charges, you just need a majority vote. This first step is within the realm of possibility.

The second step happens in the Senate, where the impeachment process would move once passed in the House. The Senate would be charged with creating a trial to investigate the allegations, and then, would have to have a supermajority of a two-thirds vote to find the president guilty. This step does not seem likely to happen.

Senate Republicans only have nine seats up for reelection, making it nearly impossible for them to lose a majority in the Senate. And even if they did, Democrats alone still wouldn’t have enough votes to get to the supermajority. Sixty-seven votes for impeachment in the Senate would have to be based on something as big as full-scale Russian collusion, from where I stand. Regardless of what Michael Cohen has to say, I don’t see this happening.

Let’s indulge for a moment and talk through what would happen if both the House and the Senate vote for impeachment. In this scenario, we would have current VP Mike Pence as our President. Would he roll back Trump’s regulations? The tax cuts? Government defense spending? Would he be softer on trade? The answers to all of these questions are no.

Our bottom line is this: If all of the ifs come true and President Trump is impeached, we won’t all be poor. Very little would change – fiscal policy and regulatory policies would all stay as a tailwind, not a headwind to the economy or markets.

Disclosure: This information is provided to you as a resource for informational purposes only. It is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. The information contained in this piece is not considered investment advice or recommendation or an endorsement of any particular security. Further, the mention of any specific security is solely provided as an example for informational purposes only and should not be construed as a recommendation to buy or sell. Always consult your own legal, tax or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.

3 months ago
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  • Ogden Lafaye

    The Republicans will not lose the house. The press favors this outcome based on the Democratic scare tactics and fake news projections.

    September 12, 2018      10:48 pm Reply