This week, President Trump achieved a somber distinction as the third President in the history of the United States to be impeached. Trump has famously predicted that if he were booted from the White House, the stock market would crash. However, history has shown that impeachment trials are largely sideshows when it comes to market performance. Wall Street is predominantly affected by corporate profits and the economy.
When President Nixon was under investigation in 1973 and 1974, the economy was more concerned with the Arab oil embargo, which caused long lines at the gas pump and drove up prices. The government was also trying to rein in inflation by raising interest rates to double-digit levels. Then, November 1973 marked the beginning of one of the worst recessions in U.S. history. Nixon’s impeachment was a relatively minor concern.
President Clinton’s impeachment proceedings began in 1998. The Senate eventually acquitted him in 1999, allowing him to complete his term. However, the investigation and trial occurred during one of the strongest bull markets in history. Stocks were up 28% between the start of impeachment hearings and the Senate acquittal.
Today, the market is enjoying the longest bull market in U.S. history, an all-time high for corporate profits, and a 50-year low for unemployment. Trump would like to take credit for these gains, but he has benefitted from a shift to corporate power and an attack on labor that began long before the 2016 elections. The transfer of American jobs overseas, the use of technology to devalue workers, and the decline of union power began back in the Reagan presidency and has escalated ever since.
During the Great Recession of 2008 and 2009, U.S. firms fired more workers than usual. This allowed them to jumpstart profits when sales recovered. Consequently, the robust economy has hardly affected the average worker, whose wage growth has been tepid. Since wages represent over two-thirds of corporate costs, it’s no surprise that corporate earnings have skyrocketed.1
Many analysts feel that if the Trump impeachment were to have any impact on the market, it would have been baked into stock prices long ago. Rather than impeachment, the stalled trade talks with China have been the biggest drag on the market. In fact, Trump’s risk of impeachment may ease the way to an agreement, since Trump badly needs to show something positive. Trump has been motivated to move into Phase 1 of a mini-agreement with China, which offers some trade relief to China in exchange for increased purchases of agricultural products from the U.S.
At times like these, we sometimes need to step back and take a hard look at reality. When we focus on Breaking News that changes hourly, it’s easy to lose sight of long-term goals, react emotionally, and make unwise investment decisions. What happens in the next few days, months or years is unlikely to have a lasting impact on retirement goals that will be important to you for the next 25 to 30 years.
We know that over the long-term, the market tends to go up, regardless of the political situation. One of most effective ways to capture these returns is to build a diversified portfolio that doesn’t put all your eggs in one basket. The balance of different asset classes in your portfolio reduces the impact of market volatility. If you keep your eyes on the prize, Trump’s impeachment will likely be a faded footnote to your successful retirement.
This will be my last Rafu Shimpo article after a 25-year career in the finance industry. Thanks to my wonderful clients, top-notch staff, and my talented daughter, Akemi Kondo Dalvi, I’m able to retire. I feel so fortunate to leave Kondo Wealth Advisors with the peace of mind that our clients will receive even better service and advice. Akemi has worked alongside me since 2008 and is both a CPA and Certified Financial Planner™. She will continue to lead Kondo Wealth Advisors and inherit the privilege of writing finance articles for the Rafu. Thank you to the sharp and dedicated folks at the Rafu Shimpo for their support to grassroots community causes, and for allowing me to bend your ear for so many years. It has been my honor to serve the financial needs of this community.
1 CNN Money 8/29/2018