After firing FBI director Comey and allegations from Comey, Trump’s detractors are claiming that the Trump-Russia allegations really are true. We don’t think so. However, let’s take a walk down memory lane and see what would happen if it turns out that Trump really did collude with Russia during last year’s election. Would Trump’s impeachment or resignation cause the U.S. stock market to fall (or worse, crash)?
U.S. stock market’s reaction to Nixon’s 1974 resignation
*Keep in mind that the U.S. stock market was already in a bear market from January 1973 to October 1974. Our model caught both the top and the bottom of this bear market. So the U.S. stock market would have gone down with or without the Nixon scandal.
October 20, 1973: the special prosecutor who was tasked with investigating the failed Watergate break-in was fired after he demand tapes of Nixon’s conversations in the Oval Office. Many started to call for Nixon’s impeachment.
Although the S&P did start to fall after October 1973, it did not do so because of the Nixon problem. OPEC announced an oil embargo on the U.S., which caused the S&P to fall significantly. In fact, the S&P was completely flat in the week after October 20!
March 1, 1974: Nixon was deemed to have been in conspiracy with the “Watergate Seven”, who were later indicted. The U.S. stock market completely ignored this news! The S&P continued to rise from mid-February to mid-March 1974.
May 9, 1974: the House starts to hold impeachment hearings for Nixon. The S&P actually went up on the day of this news, but subsequently started to fall.
Late-July 1974: Congress orders Nixon to turn over White House tapes and the House moves to impeach Nixon. The S&P started to slide.
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August 8, 1974: Nixon announces that he would resign. This is when the S&P really started to fall in earnest. Following this news, the S&P fell nonstop in August and September 1974 before bottoming.
Conclusion: The S&P’s reaction to impeachment-related news will be random and sporadic until the president resigns. The S&P would only start to really fall AFTER the president resigns.
Here is the S&P’s chart for 1973 and 1974.
S&P 500’s reaction to Clinton’s 1998 impeachment
January 17, 1998: Clinton swore under oath that he did not have an affair with Monica Lewinsky. The S&P 500 paid no attention to this news. Throughout the rest of January, Clinton continued to deny these allegations. The S&P was flat and did not move on Clinton-related news. At the time most people believed Clinton. His approval rating was very high throughout the whole scandal and subsequent impeachment.
August 17, 1998: Clinton admitted that he had “inappropriate contact” with Lewinsky. This proved that he had lied under oath. Once again, the S&P ignored this news. It actually went up for 2 days.
Throughout September 1998, Congress moved towards impeaching Clinton. The S&P ignored this news and consolidated sideways throughout September.
*Keep in mind that the U.S. stock market made a big correction from July – October due to Japan’s economic contraction and Russia’s financial crisis at the time. See our history of 1998.
October 8, 1998: the Republican-controlled House voted to begin impeachment hearings on Clinton. The S&P’s big correction bottomed on this day, and it started to soar after that! Clinton was impeached on December 19. But the S&P 500 just kept rallying.
February 12, 1999: the Senate voted to not remove Clinton from the Presidency. The S&P did not surge on this news. Instead, it merely consolidated for the next 3 weeks.
Here is the S&P’s chart for 1998 and 1999.
What this means for Trump: is this time different?
History shows that the S&P did not really start to react to impeachment-related news UNTIL the president resigns.
So if history repeats itself and the Trump-Russia investigation continues, it will not have a real bearish impact on the U.S. stock market until it’s clear that Trump will be forced to resign.
However, this time might be different. Perhaps the S&P will fall while the Trump-Russia investigation goes deeper and deeper. Here’s why.
The market didn’t care about Nixon in 1974 or Clinton in 1998 because neither presidents had an impact on the U.S. economy at the time. The U.S. was already in a recession in 1974 anyways, so Nixon resigning would not have made a difference. Clinton didn’t do much in office, so market participants didn’t really care if he remained president or not.
Trump is different. To a certain extent, the stock market is elevated due to continued hopes of Trump’s pro-growth policies. If the investigation continues, the market’s hope for these policies will dissipate.
So perhaps we were wrong. Perhaps the stock market won’t fall because it’s being dragged down by oil. Perhaps it will be dragged down by Trump.
Be careful about Comey’s testimony on Thursday June 8.
Here’s why we’re sitting on 100% cash right now.
We have no idea how much the market will fall because we don’t know how far the investigation will go.
- We’ll go 50% long UPRO (3x S&P 500 ETF) when the S&P falls 6%.
- If Trump is impeached, expect the S&P to make a big correction. We’ll go to 100% long UPRO when our model‘s big correction bottom signal comes out. In this case, our model will fail to predict the big correction (the 4th failure in 67 years).
- Even if Trump is impeached and resigns, this is still a bull market.