The Market Will Do Fine
The Washington Post, Tuesday, December 15, 1998; Page A27
There are legitimate reasons to oppose the impeachment of President Clinton, but concern that it will cause the stock market to crash and disrupt the economy is not one of them.
While presidents get the credit when the Dow and the GDP go up, and the blame when they go down, politicians rarely have much effect on either. In fact, a thriving economy depends mainly on interest rates, technological progress and corporate profits—all largely beyond the control of Washington.
If Bill Clinton is driven from the White House and replaced by Al Gore, the effect on stocks and the real economy will likely be small and brief, even providing a fine buying opportunity for long-term investors.
What about an impeachment trial in the Senate, during which little legislative business would be done? Not a big deal.
First, both sides have a stake in making the trial short—perhaps only a few weeks. And, second, over the next two years, in a divided government, there's not much that Congress and the president were going to do anyway, other than reform Social Security—which may be more likely after impeachment, as the parties try to prove to voters that they can accomplish something despite all the turmoil.
In fact, if there is any correlation, it seems to be that the closer Clinton gets to impeachment, the more the U.S. economy and the markets prosper—no matter what's happening in other parts of the world.
Look at the big picture. On Jan. 17, Clinton gave his deposition in the Paula Jones case, and four days later newspapers reported that he was asked about an affair with Monica Lewinsky. The scandal had broken.
At the time, the Dow Jones Industrial Average was languishing nearly 400 points below its August 1997 high. While stocks did drop in the week following the first Lewinsky revelations, they quickly rallied. The scandal seemed to revive the market.
On Jan. 20, the Dow Jones Industrial Average closed at 7873; last Friday, it closed at 8822. That's a return, including dividends, of 14 percent, or three percentage points better than a normal year in the stock market. Other market indicators of crisis are also absent. The interest rate on a 30-year Treasury bond has dropped from 6 percent to 5 percent, and gold has barely budged all year, trading around $300 an ounce. Meanwhile, gross domestic product has surged 3.5 percent this year, inflation is a minimal 1.5 percent and unemployment just 4.6 percent.
During the first critical period for Clinton—between the first news reports and April 1, the date the Paula Jones suit was dismissed, the Dow gained more than 1,000 points. During the second critical period—from Aug. 17, when he gave his deposition to the grand jury, admitting "inappropriate intimate contact" through the Judiciary Committee's approval of four articles of impeachment—the Dow rose 400 points.
Still, in August, as the market fell, experts discovered a connection between the decline and the scandal. "I think it's definitely cracked the market," said Charles Henderson, chief investment officer at Chicago Trust Co. "If there's one thing the market hates, it's uncertainty."
Yes, but uncertainty over what? Impeachment? Or corporate earnings, the dicey economies of Southeast Asia, recession in Japan, default in Russia?
On Sept. 9, the Starr report went to Congress. Talk about uncertainty! Instead of dropping further, the market continued to rally through much of September, setting the stage for a record October. The Dow is now about 1,000 points higher than it was when those trucks full of evidence pulled up to Capitol Hill.
"What's most noteworthy about Wall Street's reaction to impeachment is that . . . there has been so little of it," writes Alan Abelson in Barron's this week.
True, but, then again, why should there be much reaction? Clinton's presidency has coincided with a bull market, but if you believe that politics affects stocks at all, then you have to acknowledge that his responsibility for a soaring Dow may be less than that of Republicans, whose victory in 1994 prevented higher taxes and new spending programs that threatened to roil both the market and the economy. Unless stocks collapse in the next two weeks, then the period since the GOP sweep will be the best four years ever for the modern market.
I do have one worry about stocks and impeachment. What if Clinton decides that, to keep the White House by appearing indispensable, he needs to take risks, similar to the missile attacks on Afghanistan and Sudan earlier this year? World War III would put a damper on the stock market.
One could also argue that, until the House actually does decide to impeach President Clinton, in a vote that should come by week's end, the markets don't really believe he's on the way out—so they haven't responded with full force.
Possibly, but markets act at the margin; prices rise and fall based on probabilities, not certainties. And, while Clinton's chances of filling out his term have been reduced by, say, 20 percent since the start of the year, stocks are still up smartly.
In the end, of course, justice should trump money. House members should follow their consciences in deciding whether to impeach Clinton, rather than worrying about a decline in the market. Still, it's nice to know that the evidence indicates strongly that impeaching the president won't damage either stocks or the real economy.