PAUL J. RICHARDS
Presidential Impeachment
and US Stock Markets
By Peter C. Earle
A broad array of academic studies find
a connection between political stability
and economic growth. It’s intuitive: as the
setters and overseers of the “rules of the
game,” elected and appointed government
officials have a direct impact upon fiscal,
monetary and regulatory policy. If those
policies are consistent over time and thus
predictable, firms can budget and plan—
which in turn sets the stage for economic
growth.
Compared with other nations, the
United States has had a consistent record
of political stability, with a few brief exceptions:
the American Civil War, in particular.
(Even during the War of 1812, during
a foreign invasion, political rule remained
essentially intact.) The United States has
also experienced little unforeseen presidential
turnover, with a single resignation
and a few assassinations. One might argue
that presidential impeachments are the
closest the United States ever comes to
true political uncertainty.
This article examines the stock market
effects of presidential impeachment
Members of the House Judiciary Committee
discuss articles of impeachment against
US President Bill Clinton on Capitol Hill in
Washington, DC, December 11, 1998.
proceedings. We likely need not ask
whether impeachment proceedings affect
the financial markets; rather, we seek to
determine how impeachments affect the
financial markets. But rather than jump
directly to the three historical episodes
(Andrew Johnson, Bill Clinton and Donald
Trump), we will first examine market
reactions to three proposed elements of
impeachment concerns individually, and
then compare them to what equity markets
actually did during and after the three
impeachments. The three elements are:
general uncertainty; concern about the
succession of key persons; and worries
specifically associated with the removal of
a US President (outside of elections).
Our equity market benchmarks will be
US equity indices: usually the Dow Jones
Industrial Average, but occasionally others.
But first, a few caveats. First, no market
moves in response to a single cause;
for that reason, one cannot attribute the
entirety of a move in prices, or the lack
of a move, to one specific event. Second,
one is well advised not to use the price
fluctuations of stock indices, at least not
alone, to draw major sociological conclusions.
And finally, over the period under
examination (from 1868 to 2020) the size
and complexity of stock markets increased
tremendously. The longer the time period
between events, the less relevant comparisons
between them tend to be.
I: General Uncertainty
The prospect of an impeachment creates
great uncertainty, and uncertainty is the
bane of financial markets. Because the
United States is the largest economy in
the world, the issuer of the world’s reserve
currency and at the center of a massive
network of global trading relationships, an
injection of sizable uncertainty spells concern
for not only Americans but foreign
governments, as well as global investors
of all stripes. As a first step, I examine the
impact of a series of unexpected events
upon the US equity markets.
Few would be surprised to hear that
financial markets are notably averse to
sudden increases in unpredictability. The
average decline among these events shall
serve as an initial, if incomplete, benchmark
(see Table 1).
II: Unexpected Removal of Key Officials
To consider the financial impact of the
removal of a high-level decision maker,
consider this element of impeachment by
analogy: how do stock prices react when key
personnel leave a company unexpectedly?
CEOs
According to CNBC anchor Jim Cramer,
unexpected resignations are a major
red flag for investors: “When you see
26 FINANCIAL HISTORY | Summer 2020 | www.MoAF.org