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Impeachment and your portfolio: where we go from here Thumbnail

Impeachment and your portfolio: where we go from here

On Wednesday, President Trump became the third US president to be impeached. Regardless of your political views, the reality is that this sets us up for a Senate trial in January. While the process won’t begin or, indeed, end until 2020, the question on many investors’ minds is: “How will this affect my portfolio—now and over the long-term?”

 At the moment, the stock market seems quite steady. (In fact, the markets are up slightly even as I write.) As you know, stock prices are the aggregate result of all information that is relevant to a company. Analysts use all of this information to determine a fair value for the stock’s price. Typically, even the most dramatic headlines have minimal impact on stock prices as long as the news was expected. In these cases, the news is often ‘priced in’ to the valuation. It is only when the news is different from what was expected that markets tend to move dramatically.  

For example, investors and financial analysts (who often drive stock price movement) pay close attention to the Fed every time they raise or lower interest rates. If the Fed’s decision is anticipated, stocks tend to hold steady. But when the Fed’s decision comes as a surprise, stock prices tend to jump. The same pattern has held true throughout the recent tariff war with China. When the tariffs were new, investors reacted and stock prices tumbled. But as the impact became more clear and the surprise element dissipated, the markets slowly but surely recovered. 

Headlines have been pointing to Trump’s impeachment for some time. Nancy Pelosi announced the start of a formal impeachment inquiry way back in September. Since then, the S&P 500 and the Dow have both risen to new heights and even broken historic records. On Wednesday, the markets were flat—even in the face of the pending impeachment vote. Clearly, the impeachment was already ‘priced in’ to stock prices. As a result, it seems unlikely that the impeachment will drive any short-term shock waves to the stock market—or to your portfolio. 

What will happen over the long-term?

While there is no crystal ball, the best indicator of the future is to learn from the past. This isn’t the first time the stock market has responded to an impeachment of a US president. Markets were resilient during the Clinton impeachment, and the numbers reveal a market with pretty normal levels of volatility. While the market did not perform well at the time of Nixon’s impeachment, it’s also true that the 1970s were a rough period for markets in general. The economy was flat, inflation and unemployment were high, and it was an era of poor economic policies and a major oil crisis. While we certainly face our own economic challenges at the moment, the global economy today stands in stark contrast to that of the 1970s. 

 As we head into January, there are two possible scenarios: Trump will remain in office, or he will be removed from office. If he remains in office, not much will change. Tax law will stay the same, the tariffs will continue, and we will head toward November’s presidential election as expected. If Trump is removed from office, Mike Pence will become president. In this case as well, it is likely that things will remain relatively stable—at least financially. Pence would likely maintain Trump’s tariff policies and the current tax code, and, again, the presidential election will be in sight. 

What is an investor to do? No matter what the outcome of the Senate trial in January, I recommend staying the course. How the markets will react to each piece of news in the coming months is anyone’s guess, but that is always the case. What has also always been true is that the markets rise over the long term. Will we see some volatility in the markets if January brings surprises? Probably. But staying invested, rebalancing when needed, and harvesting losses is the best strategy for long-term growth. In the interim, enjoy each day as it comes, and know that if you have questions, we are always here to help!