Investors might be concerned that the impeachment trial of President Donald Trump, which began Thursday, Jan. 17, could cast a pall over the stock market's recent run to all-time highs.
But if past is prologue, the market will shrug this off. In fact, it might even generate enviable returns.
That's what happened last time, anyway.
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As you may recall, President Bill Clinton was embroiled in a scandal of his own that ultimately led to his impeachment by the House of Representatives and a trial in the Senate. That was a bit more than 20 years ago during the peak years of the dot-com boom.
The height of the Clinton impeachment ran from Dec. 19, 1998, to Feb. 12, 1999 – the date the House approved two articles of impeachment, to the date the Senate announced his acquittal. During that period, the blue-chip Dow Jones Industrial Average gained 4.2%. The broader S&P 500 rose 3.5% on a price basis.
That's a heck of a return for less than two months of market action.
Interestingly, stocks were no more volatile during the Clinton impeachment. They just chipped in steady gains during what was a heady time for the country.
During the two-year period of 1998 and 1999, the cyclical bull market was on fire. The Dow rose 45% from the beginning of 1998 to the end of 1999. The S&P 500 jumped 51%.
And as for the tech-heavy Nasdaq Composite, the star of the late '90s tech boom? It gained 159%.
As we now know, irrational exuberance fed an epic bubble in share prices that would pop in early 2000. But there were real underlying reasons for investors to go a little nuts. Namely, the economy was zipping along in high gear. In 1998 gross domestic product increased 4.5%. In 1999, it accelerated to 4.8%.
The economy was as healthy as it had been in a long time, and inflation was around the goldilocks level of 2%. U.S. corporate operating earnings – the mother's milk of share prices – were forecast to grow 16.4% in 1999.
This year’s impeachment trial comes against a somewhat similar backdrop, albeit a more modest one. The economy is growing steadily, though at a slower rate than it was back then. Analysts forecast earnings growth of between 4.5% and 6.5% for the first half of 2020. And inflation is negligible.
Oh, and we're in the midst of the longest expansion and bull market in history.
It likely will take a lot more than some drama in Washington to tank this market.
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