What The Impeachment Inquiry Means For Your Portfolio
Impeachment is not necessarily what's driving the market higher Wednesday, Wall Street says.
Before we get into this, let's just understand how markets function.
Markets discover price based on various factors tugging and pulling at each other.
It's not incredibly often that one single factor accounts for the entirety of price discovery over a given period of time.
Now let's look at the facts.
The Facts A day after news that the Democrats on Capitol Hill filed to begin the impeachment process, the S&P 500 rose 0.64%, with the Dow Jones Industrial Average gaining 0.62% and the tech-heavy Nasdaq up 0.97%.
With two-thirds of the Senate required for the actual impeachment process to kick off, the chances the president is removed are not exactly high.
Twenty Republicans would be needed for the two-thirds vote to happen.
Meanwhile, on China, President Trump said Wednesday, "it [trade deal with China] could happen.
It could happen sooner than you think." Of course, the market's pattern in the past year and a half has been to whipsaw in both direction on both negative and positive trade headlines, often driven by Trump.
Those market reactions are largely triggered by trading algorithms, which pick up key words and phrases from headlines.
Nonetheless, investors badly want to see a trade deal.
Investors also may want to see a third interest rate cut, although that cut is less likely, should there be a trade deal.
With tariffs set to go into effect in December, should a deal not get done, the Federal Reserve may be compelled to cut rates a third time in 2019.
Still, several Fed officials have said another rate cut could create excesses in household finances and prices of risk assets.
On impeachment, LPL Financial published data Wednesday that showed a murky picture for what happens to stocks when there's an impeachment.
With a small sample size (impeachment is rare).
Here are the results: When President Richard Nixon was impeached in 1973, the S&P 500 fell 15.6% in the next 6 months.
When President Bill Clinton was impeached in 1998, the S&P 500 then returned 41.6% for the next six months.
Sure, there were impeachments preceding those two six-month periods, but LPL Financial's Senior Market Strategist Ryan Detrick said: "The one major difference between those two times was the economy was headed into a vicious recession in the mid-'70s, while the economy was humming along in the late 1990s." Investor Concerns Again on impeachment, however likely or unlikely this comes to fruition, investors must consider what a new president can do to markets.
Taxes, trade policy, healthcare policy, and the subsequent impact on interest rates would all be factors.
But the market is far from clear on what that picture is looking like now.
Meanwhile, market participants have been saying a potentially escalated U.S. China trade situation is outweighing the impact of interest rates on both the upside and downside.
And that was no different Wednesday.
"Markets are way more interested in a trade deal with China," said Jamie Cox, managing partner for Harris Financial Group in emailed remarks to TheStreet.
Derrick said, "As long as the economy remains firm, we don't think the drama out of Washington will impact the staying power of this bull market."