Dec 12, 2019

Noise or News?

In this month's commentary, our in-house research team dives into the implications of previous impeachment proceedings and what this means for the road ahead.

As a white blanket of snow officially covers the ground and Black Friday unofficially kicked off the holiday shopping season, the month of November ended in strong positive territory for both the U.S. and Canadian markets. Both the Canadian (S&P/TSX) and the U.S. markets (S&P 500) had an impressive month with returns exceeding 3%. With another period of positive returns in the books, the S&P 500 has now hit 26 new all-time highs year-to-date and boasts a return of over 25%. It is clear the stock market has continued to push through the noise amidst the jumble of global concerns and the ongoing impeachment hearings of U.S. President Donald Trump. While many investors are worried about the high-flying stock market amid the multiple areas of economic and political issues worldwide, we may be in for a longer ride than some expect.

 

As the Trump impeachment hearings have continued to take over news headlines, opinions remain divided on the effects this could have on the stock market. Before Donald Trump was elected the 45th President of the United States, only three of his predecessors faced impeachment proceedings: Andrew Johnson in 1868, Richard Nixon in 1973 and most recently, Bill Clinton in 1999. Before making our own judgment – let us take a dive into what history has taught us from the two modern day impeachments.

 

In the case of President Nixon, the period that included the infamous Watergate investigation, the resulting House impeachment inquiry, and his eventual resignation, coincided with one of the worst bear markets in American history. However, much more was going on outside of the White House drama—inflation was high and the oil crisis was rampant. Conversely, during the Clinton impeachment inquiries, the stock market soared but this market rise had little to do with politics. During this period, technology stocks were heating up as the tech bubble of the 2000s began to form and the U.S. Federal Reserve was cutting interest rates. While our sample size may be small, it is clear markets have had a varied response to presidential impeachments and any effects are difficult to isolate from the underlying economic landscape. 

 

Throughout the Trump impeachment inquiries thus far, the markets have generally shrugged off the drama. We expect this to continue and, while impeachment is a significant event in the political world, from a market standpoint we do not foresee the impeachment process as being a market driver. Firmly remaining in the driver’s seat, to no one’s surprise, is the ongoing and ever-evolving trade war between the U.S. and China.

 

During the month of November, the American and Chinese counterparts continued the negotiations of the “phase one” trade agreement. While this first phase deal was initially viewed as a short-term fix with only minor concessions, the two sides still have yet to seal the deal. While nothing has been signed, the market did perceive some progress on this first step towards a U.S./China trade deal, leading the markets higher.

However, let us not get ahead of ourselves. As we have learned over the past year, this sentiment can change at the click of a tweet.

As the new year is quickly approaching, we expect the news headlines to continue to reflect the unending noise of the current global affairs. While the ride may be a bumpy one, our opinion remains that we will continue to see a slowing but growing economy. As we move through this uncertainty and do see elevated risks in the current economic environment, our overall asset mix remains slightly underweight equities. Although stock market highs can sometimes feel just as uncomfortable as stock market lows, we encourage clients to keep politics out of your portfolio, ignore the noise, and stay focused on your long-term goals.