With the President facing impeachment, investors are cringing, thinking of a repeat of 1974 when Nixon went down and took the markets with him. But history suggests otherwise. When Andrew Jackson was impeached, markets cared little. When Bill Clinton was impeached, stocks fell 5% but made back most of the losses by the close and then started soaring in the subsequent months.
Then why did Nixon’s impeachment have such a severe reaction? It was other events – Oil price embargos and inflation running out of control as well as wage and price controls. Markets were bracing for better news until it got worse.
And so, what are we to expect with Trump’s possible impeachment?
Future Wealth View
The most optimistic view is that Trump could get impeached by the House but the Senate, filled with Republicans, are unlikely to convict him. And so, we could witness a repeat of the Bill Clinton charade. The worst case is if a group of Republicans who have been seething from Trump’s vicious tweets turn against him and decide to kick him out of office. The markets may cheer once again. But, the prospect of Vice President Pence, a largely unknown no-tweet guy, going head to head against Biden or Warren could infuse further uncertainty into the market and we could have a Nixon exit type correction.
But, putting politics aside, we, Future Wealth, are more concerned about the outcome of the trade war with China than if Trump goes in the dog house with Nixon or not. A lack of resolution on the trade war is by far the biggest risk that investors face, in our view. If the President does get impeached, his braggadocio will likely be diminished and Mr. Xi in China is sure to notice. That could mean that there will be no resolution till the 2020 elections.
Given all the risks, the three sectors we favor today are Utilities, Consumer Staples and Real Estate Investment Trusts – those that are primarily defensive sectors and provide solid dividends to shareholders. To go leaning toward aggressive growth, in search of higher return, in these tumultuous times is an extremely risk bet – in poker parlance, know when to hold them, know when to fold them.