For months, U.S. President Donald Trump assured the nation that his administration’s pro-business policies would help boost the economy. The loosening of federal regulations designed to serve as an economic bulwark for consumer protections, the dismantling of environmental regulations, and (attempted) restrictions to legal and illegal immigration have done little to shake up the economy or deter investors’ confidence.
And Trump is not afraid to take credit for that resiliency, reminding American voters that he promised a strong economy under his leadership and was now implementing policies that would bolster consumer spending and business growth.
But last week, the impact of that self-proclaimed “Trump effect” came home to roost. With the intensifying investigations into alleged Trump-Russia ties and Trump’s firing of former FBI director James Comey (who was leading the investigations into his administration), the U.S. stock markets issued their own edict about just what political chaos in Washington could mean for the economy.
On Wednesday, as news emerged suggesting that Trump may have tried to directly impede or influence a federal investigation, stocks on the nation’s three indexes dropped 1.7 percent, erasing in one day most of the gains seen since Trump took office. The S&P alone saw a 370-point drop on Wednesday.
Just as significant was that the free-fall took global markets with it. Japan’s Nikkei stock market registered the worst loss, tumbling more than 2 percent in one day, or 414.5 points.
Since then, many questioned just what could happen if Trump is unable to meet his campaign promises. Specifically, what would happen if that “Trump effect” transformed into a Trump impeachment?
The answer to that question is hard to find, say analysts, who point out that there isn’t a lot of historical data about what happens to the stock market when a president, lauded (by some) for his ambitious plans to improve business opportunities both domestically and abroad, faces possible impeachment.
The year and a half prior to Richard Nixon’s impeachment in 1974 is often used as a gauge to figure out just how much influence a scandal may have on investors’ confidence, historians say.
“Wall Street was already mired in one of the worst bear markets in history” by the time the news broke about Nixon’s pending impeachment, wrote Times reported Taylor Tepper. January 1973 to August 1974 was a whirlwind of events that included an oil crisis and global market shakeups that extended beyond the Nixon administration’s own catastrophic demise.
What may ultimately impact the markets isn’t whether the president of the United States is impeached, but whether he is able to deliver on the sizable promises he made for the country. So far, we have a consumer-friendly healthcare program that turns out won’t cover everyone and a border wall that has proven to be economically challenging and a political mine field to boot. Not delivering on a comprehensive tax reform — the lynchpin of his presidency — because of political chaos in his administration could signal a lack of faith in his ability to set the country on a new economic course as he promised.
David Rosenberg, chief economist and strategist at Gluskin Sheff and Associates, points out that investing around what’s happening in Washington and the promises of a campaign trail is never a good idea.
“Despite my advice not to invest around Trumponomics, people did it in any event and that is what is being unwound now,” Rosenberg said.
Still, that doesn’t mean more trouble for the stock market, say some analysts, who point out that the markets are somewhat used to scandals and chaos in Washington. Others, like BK Asset Management strategist Barry Schlossberg, believe the “muted” response from Wednesday’s fall indicates that the markets already “assume” the worst: that Trump will be impeached.
Either way, Trump’s ability to stay on top of his game and deliver on a tax reform that helped get him elected will likely have a large say in how the stock markets fare as an increasingly more complex federal investigation takes shape in Washington.