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Analytics, 14 January 2021

How will stocks react to a 2nd Trump impeachment?

The second impeachment of President Donald Trump looms Wednesday in Congress, in what is shaping up to be a historic moment in American politics. But markets appear unperturbed, though mindful of political developments in Washington. Market participants note that whether Trump is impeached and convicted in the Senate or not, markets will not move much unless the event impacts the ability of Congress to focus on economic recovery measures.

The House is preparing to vote to impeach President Trump for alleged incitement of the mob that stormed the U.S. Capitol a week ago as Congress was meeting to confirm the election of Joe Biden. Five people lost their lives in the riots, which raised questions in the U.S. and around the world about the integrity of U.S. democracy and a smooth transfer of presidential power.

House Democrats led by Nancy Pelosi, the Speaker of the House, charge that Trump “wilfully made statements that, in context, encouraged—and foreseeably resulted in—lawless action at the Capitol, such as: ‘if you don’t fight like hell, you’re not going to have a country anymore.’”

However, market participants note that whether Trump is impeached or convicted in the Senate or not, markets will not move much unless the event impacts the ability of Congress to focus on economic recovery measures.

For instance, fears that impeachment proceedings may forestall Biden’s legislative agenda could cause some stumbles in what has been a steady climb for equity markets to record highs this month. The market appears to be balancing the impeachment as the new administration comes in and the hopes for a new stimulus. Biden said Monday he had asked whether the Senate could “bifurcate” its schedule, so impeachment and his agenda could be dealt with simultaneously. “Can we go half-day on dealing with the impeachment and half-day on getting my people nominated and confirmed in the Senate?” Biden said as he got his second dose of the coronavirus vaccine.

U.S stocks indices were under pressure Wednesday, led by the Dow as the Nasdaq and the S&P 500 showed modest gains just below their all-time highs. Stocks did fall early on Monday with the S&P 500 down over 0.7%, while the Dow fell roughly 0.5% in early trading, before recovering somewhat in midday trading. The market moves preceded the introduction of an article of impeachment by the House on Monday as Republicans blocked a House resolution calling on Vice President Mike Pence to invoke the 25th Amendment to quickly remove Trump from office.

A successful impeachment in the House sets up a trial in the Senate, which would be historic because compared to Trump’s last impeachment on Dec. 19 of 2019, there is a growing view that there may be sufficient movement among Republicans to convict the president in the Senate. However, the president would likely leave office when Biden is sworn in on Jan. 20 before a trial begins, according to reports. Some investors are hopeful that Biden can make headway with his plans and believe the impeachment will finish in a week.

Indeed, the building blocks of the Biden administration, including some of its anticipated economic policies are well-understood by the market at this point. As such, impeachment politics will have less impact on the markets.

Markets are most likely focused on the earnings season which began this week. The stock market cares more about the direction of the economy, earnings, interest rates, and the actions of the Fed. In 2020, companies proved they can drive revenue and growth with lower cost structures due to low borrowing costs, remote work, and reduced travel—so traders are likely eyeing the numbers more closely than what’s happening in Washington.

The past two impeachments, including Trump’s own, didn’t result in major moves in stock prices, according to Dow Jones Market Data. Trump’s 2019 impeachment saw the stock market end the day mostly unchanged.

Bill Clinton was impeached by the House in 1998, alleging obstruction of justice and perjury, linked to testimony. Markets back then finished sharply higher on the day after his impeachment.

Thus far, no impeachment has led to a Senate conviction and removal of a president from office in U.S. history. However, forcing Trump to leave office might not be the most important aim. Trump has indicated he may run for president again in 2024, a prospect that many Democrats fear and increasing numbers of Republicans would like to avoid also. If Trump is impeached again by the House and convicted by the required two-thirds supermajority in the Senate, senators could also vote to disqualify him from serving in future federal office, which would take only a simple majority.

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