US President Donald Trump has last week faced the fresh prospect of impeachment. It therefore seems timely to revisit research we undertook in 2017. We examined the history of markets and how they reacted when previous presidents had faced such proceedings.

Here, we highlight some of what we found but also offer some context of how the situation in Washington has changed between then and now.

A brief history of impeachments

Under the US constitution, a president can be impeached for “treason, bribery or other high crimes and misdemeanours”. The impeachment procedure can ultimately lead to the removal of a sitting president from office.

The incidence of impeachment in the US are relatively rare, with only three attempts to impeach a sitting president since the founding of the country (Andrew Johnson, Richard Nixon and Bill Clinton).

Andrew Johnson, who served as president between 1865 and 1869, was impeached by the House of Representatives for “high crimes and misdemeanours”. These related to failing to provide sufficient protection to former slaves after the US Civil War. He was acquitted by the US Senate.

Richard Nixon, who was president from 1969 to 1974, resigned from office in the face of almost certain impeachment following the Watergate scandal. Bill Clinton, who served as president from 1993 to 2001, was impeached by the House of Representatives over allegations that he committed perjury and obstructed justice to conceal an affair with White House intern Monica Lewinsky. He was acquitted by the Senate.

Do markets react when presidents are impeached?

At first glance there appears to be no obvious pattern.

We found weak, rather than compelling, evidence that impeachment leads to higher volatility, although the evidence is stronger in periods where quantitative easing was not active.

Presidential impeachments are also associated variously with weaker, stronger and indifferent asset market performance. However, less superficially, we can link the impact on market performance to expectations of policy change resulting from an impeachment.

Where the perception is that a government’s policies are damaging the economy, the possibility of a change in government boosts asset performance. However, where a government is seen as benefitting the economy, or at least doing no harm, the prospect of an end to that policy set can induce market jitters.

We might read market reaction to events around President Clinton as an example of this, particularly given the rally following his acquittal. Of course, this can be as much due to the removal of uncertainty as a seal of approval on government policy.

Case study: The impeachment of President Clinton

The news of President Clinton’s involvement with Monica Lewinsky broke on 17 January 1998. Lewinsky eventually agreed to testify in late July of that year, and on 17 August Clinton admitted to an “inappropriate” relationship. A Republican-dominated Congress voted to begin impeachment proceedings in December for perjury and obstruction of justice. The trial began in January 1999 and concluded with Clinton’s acquittal in February of that year.

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