Impeachment is an interesting talking point that gets your attention every time it's mentioned. Nothing frays the nerves of investors quite like scary geopolitical news that has the potential to shock markets. Especially when the market has been demonstrating low volatility for a long time and when valuations are historically high.
Nevertheless, if there is one thing markets are good at, it's being a discount mechanism - news and events are factored into investors' collective thinking, thereby limiting the impact of breaking news on market reactions. Remember this point. It'll come in handy in a few paragraphs.
The Nixon resignation took a year and 4 months to unfold; from the Watergate Break-in on June 17, 1972 to the Saturday Night Massacre (President Nixon fired special prosecutor Archibald Cox) in October 20, 1973. After that, the stock market corrected mightily, a little over 40%. But stocks did recover eventually. But it is critical to put this in context with another geopolitical event; the Arab oil embargo began in October, 1973, sending the United States into a deep recession.
For the record, Nixon was not impeached. Impeachment proceedings were initiated, but he resigned August 9, 1974 (I vaguely remember him crying on TV when I watched it with my parents and my brother) before a formal impeachment was reached.
The Clinton impeachment also took a long time to unfold. From the time of the Lewinsky subpoena by Paula Jones' attorneys on December 17, 1997 to the actual impeachment on December 19, 1998, stocks rose. In between those dates, there was a fair amount of volatility (a peak to trough of just about 20% in that 12 month period), but stocks continued their late 1990's ascent, surging even higher after Clinton was acquitted on February 12, 1999.
Let's get one thing straight; a potential Trump impeachment is strictly hypothetical. I just want my clients to be prepared with as much perspective as possible. My conclusion in all this has a lot less to do with politics and much more to do with the record low level of stock market volatility and low interest rates we have today.
Record low volatility these days shouldn't be attributed strictly to investor complacency and central bank policy; it has a lot to do with how investors have learned that stocks recover after bad news. So why bother selling other than if we think we're having another financial calamity like we had in 2008? This is a major reason why stock market volatility is low - that's the real conclusion.
Jeffrey Hirsch, Editor in Chief at Stock Trader's Almanac, put out a darn good post that offers much needed perspective.
