It’s been more than a week since Nancy Pelosi announced that the House of Representatives would open a formal impeachment inquiry into President Trump. Since that time, the S&P 500 is down more than 2.66%.
Is the market’s slide directly correlated to the impeachment inquiry? The president thinks so. In a tweet on October 2, he wrote, “All of this impeachment nonsense, which is going nowhere, is driving the Stock Market, and your 401K’s, down.”
However, investment analysts disagree with that assessment. In a recent Business Insider article, five different investment managers all suggested that near-term market performance will be dictated by fundamentals rather than political turmoil.
“It’s all noise,” said Chris Zaccarelli, chief investment officer of the Independent Advisor Alliance. He added, “During the time the House voted to impeach Bill Clinton and the Senate decided not to remove him from office, the S&P 500 rose 27%.”
The Clinton impeachment is one of only two previous instances investors can look to for guidance. The other is the Watergate scandal, in which Richard Nixon resigned less than three months after the start of a formal impeachment inquiry.
During the Clinton impeachment, the market rose significantly. However, the economy was also in the midst of the tech bubble and the internet-fueled bull market of the late-1990s. The market declined during the Watergate saga, but the economy was already in a recession. The previous impeachment episodes may suggest that investors are in fact more concerned with fundamentals than political drama.
In the Business Insider article, one investment manager said that the impeachment could have a material impact on the market if the inquiry limits the president’s ability to do his job, particularly with getting a trade deal done with China. David Donabedian, chief investment officer of CIBC Private Wealth Management, said that “trade has been the biggest cloud over investment markets for 18 months” and investors may be concerned that impeachment will stall progress.
How should you and your clients handle the potential turmoil? As is usually the case during turbulent periods, the best answer may be to focus on long-term strategy and goals rather than short-term fluctuations.
For your more risk-averse clients, this could be a good opportunity to introduce protection tools like fixed indexed annuities (FIAs). You can use an FIA to capture a portion of market upside without the downside exposure. CreativeOne can help you find the right strategy for your clients.