The impact of presidential impeachment on markets
Craig Botham looks at historical examples of presidential impeachments to assess the impact on equity and bond markets.
13 June 2017
Political noise has been on the rise in developed markets in recent years, bringing what are regarded as the more stable economies in line with emerging markets.
Though it can hardly be ignored, political noise is often hard to trade. In this note, we examine one of the more disruptive political events in a democracy, presidential impeachment.
Elements in the US have called for the impeachment of current president Donald Trump for a range of reasons.
We can offer no view on the validity of these charges, but we can look at past US presidential impeachments as a guide to what might happen to the markets.
Happily for the US, the incidence of impeachment is limited, with only three impeachment attempts since the founding of the republic (Andrew Johnson, Richard Nixon, and Bill Clinton).
Consequently, we also consider more recent examples from Brazil and South Korea, where impeachment was successful.
Do markets react when presidents are impeached?
At first glance there appears to be no obvious pattern.
We find weak, rather than compelling, evidence that impeachment leads to higher volatility, though the evidence is stronger in periods where quantitative easing was not active.
Presidential impeachments are also associated variously with weaker, stronger and indifferent asset market performance.
However, less superficially, we can link the impact on market performance to expectations of policy change resulting from an impeachment.
Where the perception is that a government’s policies are damaging the economy, the possibility of a change in government boosts asset performance, as in Brazil.
However, where a government is seen as benefitting the economy, or at least doing no harm, the prospect of an end to that policy set can induce market jitters.
We might read market reaction to events around President Clinton as an example of this, particular given the rally following his acquittal.
Of course, this can be as much due to the removal of uncertainty as a seal of approval on government policy.
What should investors consider?
Investors concerned about how to trade similar political events could therefore consider two key questions.
First, what is the likely direction of policy if an impeachment attempt (or similar) is successful?
Second, how likely is success of such an attempt? Though this might seem obvious, sticking to these simple guidelines can provide clarity when one might otherwise drown in market noise.
The full version of this article “The impact of presidential impeachment on markets” is available for download. Please note, this is written for professional investors, and is not suitable for retail investors.
Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. To the extent that you are in North America, this content is issued by Schroder Investment Management North America Inc., an indirect wholly owned subsidiary of Schroders plc and SEC registered adviser providing asset management products and services to clients in the US and Canada. For all other users, this content is issued by Schroder Investment Management Limited, 31 Gresham Street, London, EC2V 7QA. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.