- Investors kept cool heads through the last impeachment inquiry into a US president, holding non-defensive stocks as markets surged through the political drama.
- Global stocks sank late Tuesday and early Wednesday after House Speaker Nancy Pelosi's impeachment announcement and President Trump's UN speech brought new uncertainty to markets.
- Despite today's different economic backdrop compared to the Clinton era, an impeachment inquiry brings "little justification" for investors to change their portfolios, JPMorgan Chase head of cross-asset strategy John Normand wrote Wednesday.
- "This isn't the sort of macroeconomic or political environment where single factors are likely to predict much," he added.
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Investors held steady the last time Congress ordered an official impeachment inquiry into a US president, and markets thrived through the political turmoil.
That stands in contrast to the stock market's immediately negative reaction to Tuesday's impeachment inquiry announcement from House Speaker Nancy Pelosi. The proceedings bring heightened uncertainty to the US political landscape at a time when recession warnings and the US-China trade war still threaten a historic bull run.
Yet historical precedent and analyst commentary suggests today's traders shouldn't fear the political drama.
The House of Representatives voted to begin impeachment proceedings against former President Bill Clinton in October 1998. The economy was surging on the dot-com boom, and six of the top 10 performing stocks were in the tech sector, according to The Wall Street Journal. The companies that rose the most included Cognizant Technologies Solutions, VeriSign, and Qorvo.
Tech companies weren't alone in their strong performance, as major stock indexes soared through the four months of the Clinton impeachment proceedings. The Nasdaq Composite jumped nearly 64% from the start of the inquiry to the final Senate vote. The S&P 500 rose more than 28%.
Clinton was acquitted in February 1999 after the Senate failed to convict him on any articles of impeachment.
Despite the increased unreliability and vastly different economic backdrop, traders should follow the precedent seen in the Clinton era and allay their fears, JPMorgan Chase head of cross-asset strategy John Normand said.
The drama brought by an impeachment proceeding brings "little justification" for investors to change their portfolios, unless they feel "this issue is a decisive one that tips the US economy into sub-trend growth," Normand wrote in a Wednesday note.
"To us, impeachment more seems yet another constraint on returns over the next year, given the newer uncertainties created around international and domestic policy," he added. "This isn't the sort of macroeconomic or political environment where single factors are likely to predict much."
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