22 May 2017

Over the past week Australian shares were 1.4% lower. Shares in developed countries rose 0.1% with the US market down 0.4%. Shares in emerging markets were 0.7% lower. The Australian dollar rose 1.0% to 74.59 US cents. The 10 year bond yield in Australia was 0.16% lower at 2.48% while in the US, the 10 year bond yield closed 0.09% lower at 2.23%. The oil price rose 5.2% to 50.33 US dollars per barrel.

The headlines are all about the possible impeachment of US President Donald Trump. This is used by market commentators as an explanation for why markets have sold off a little. In this weekly investment update we explain impeachment, the historical impeachments of US Presidents and the impact on markets.

The United States Congress consists of two chambers; the Senate and the House of Representatives, operating in a similar way to Australia’s parliament. The House of Representatives, which is the lower house of Congress, has the power that allows formal charges to be brought against a civil officer of government, even a President, for alleged crimes. Impeachment can concern alleged crimes while in office or prior to taking office. Trials are conducted by the Senate which is the upper house of Congress.

Past impeachments of US Presidents include:

  • President Andrew Johnson (1865-1869) was impeached in 1868 for breaking the Tenure of Office Act. The claim was that he illegally dismissed a member of staff who he didn’t get on with. The impeachment trial narrowly overturned the impeachment charge by a single vote.
  • President Bill Clinton (1993-2001) was impeached in 1998 on two charges, one of perjury and one of obstruction of justice relating to an extra-marital affair with Monika Lewinsky and his testimony on that during a sexual harassment lawsuit. Clinton was subsequently acquitted of the charges by the Senate in February 1999.
  • Many people assume that President Richard Nixon (1969-1974) was impeached. He was never technically impeached since he resigned his office prior to the impeachment vote for crimes and misdemeanours related to the Watergate Scandal in the House of Representatives. 

How did impeachment proceedings affect US stock markets? We’ll consider Presidents Nixon and Clinton, excluding President Johnson.

From the time impeachment charges were initiated:

  • President Nixon - US shares fell 14.2% from 6 February 1974 to the date he resigned from office on 9 August 1974.*
  • President Clinton - US shares rose 4.1% from 19 December 1998 to the date he was acquitted on 12 February 1999.*

The data does not paint a clear cut picture that impeachment leads to market falls. It’s unclear how things will play out for President Trump. However the uncertainty and potential for a fall might increase short term market volatility. 

We’ve previously downplayed our view of the expected impact of President Trump on the US economy and the US stock market. If he were to leave office we don’t think the long term impact on markets would be large. 

Signing off

David Bell

Past performance isn't necessarily an indicator of future performance.

All data sourced from Bloomberg. 

*Impeachment numbers sourced from mba.tuck.dartmouth.edu