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Forget Donald Trump’s impeachment! Stock markets don’t care

Harvey Jones
A bull outlined against a field

Don’t worry, I’m not going into the politics of President Donald Trump’s impeachment. You already know what you think about that. I’m interested in the impact on stock markets next year.

UK and US are flying

The FTSE 100 has risen more than 12% this year and 2019 has been terrific for US stock markets, with the S&P 500 up 26% and the NASDAQ up 32% so far. The US still drives global growth. So regardless of what you think of President Trump, you want US stocks to go great guns next year too, because they should take the rest of the world with them and could affect your UK investments too.

So will impeaching the country’s president cast a cloud over the country’s markets? You might think so. After all, the S&P 500 fell sharply when impeachment proceedings against President Nixon started, and continued to fall for two months after his departure in 1974.

So what happened after the House of Representatives passed two motions of impeachment against the current incumbent?

The S&P 500 hit an all-time high, topping 3,200 for the first time, while the FTSE 100 also ended Thursday up.

Trade counts

Investors simply weren’t interested or impressed. Instead, they chose to celebrate comments from Treasury Secretary Steve Mnuchin, that pointed towards a US-China deal being signed in early January.

That’s what markets care about, rather than partisan US politics. Also, they firmly believe that the impeachment process is going nowhere. 

This week’s vote was passed by a simple majority. In the House, that’s all they need. In the Senate, where it goes next, two-thirds will need to vote for Trump’s removal.

There are 100 senators, which means 67 must back the move. A mere 47 are Democrats or independents, which means 20 Republicans would have to flip sides, and nobody believes that is going to happen, because Republicans in the House didn’t lodge a single vote against Trump. As I said, these are partisan times.

Bill Clinton was impeached too

President Clinton was impeached in December 1998 on two counts, but acquitted by the Senate in February 1999. The Monica Lewinsky scandal dominated headlines but didn’t stop the long bull market run of the 1990s.

You shouldn’t read too much into the attempted Nixon impeachment either, because it landed at roughly the same time as the 1973 oil shock, which plunged the US into recession as inflation rocketed.

So next year, markets (including the FTSE 100) will be driven by other factors, such as the US-China trade war, whether the US Federal Reserve cuts rates again, and the direction of company earnings. The Boris Bounce will play a minor role too.

It’s still the economy, stupid

I don’t expect a repeat of the recent bumper year, as valuations look toppy after the surge of recent years, with the S&P 500 now trading at more than 30 times earnings. The IMF expects the US economy to grow by 2.1%, hardly disastrous, although lower than this year’s 2.4%.

What does this mean to me, you might ask? Where the US goes, the UK follows, by and large. We have been off the pace due to Brexit, and I’m hoping domestic markets will start playing catch-up in 2020, and stocks like these could help make you rich. I would rather we were playing catch up with a US market that was still rattling merrily along, than bogged down in political in-fighting. 

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2019