S&P 500

Safe-Haven Markets Showing Limited Reaction to Impeachment Inquiry

Another way to look at the impact of the impeachment inquiry into President Trump is to watch the reaction in the so-called safe-haven markets. During periods of unrest in the financial markets, investors tend to sell risky assets and move their money into Treasurys, gold and the Japanese Yen. We saw these textbook moves on Tuesday when investors trimmed their positions in stocks and move their money into the perceived safety of U.S. Treasurys, gold and yen.

No Overreaction by Investors

Early Wednesday, U.S. stocks are edging higher while Treasurys, gold and yen are moving lower. This tells me that investors are in sync with the news and not overreacting until they are presented with all the evidence.

Don’t get me wrong, the impeachment of a president is a big deal, but based on the early price action in the key financial markets, we haven’t hit the point of concern yet, and we may never get there if the investigation into President Trump’s alleged wrong-doings show he did not break the law.

What We Know So Far

All we know at this time is there will be an impeachment inquiry. This move was serious enough to encourage investors to sell stocks, and buy Treasurys, gold and Japanese Yen. The next reaction in these markets will be to the transcripts of the phone call between President Trump and Ukraine President Volodymyr Zelensky later today.

The early reaction in the markets indicates that investors don’t expect the transcripts to worsen the situation, but that the inquiry will continue until the President is completely exonerated or cleared.

News Discounted

The price action on Tuesday indicates that investors have discounted the latest news, which is essentially the start of the inquiry. The next move will be investors reacting to whether something serious is brewing, or that this is just another distraction for the President.

Is Past a Good Guideline?

According to CNBC, “Stocks have previously struggled when a president faces the possibility of impeachment. In 1998, the S&P 500 fell about 20% at one point from its high to its low as independent counsel Kenneth Starr ramped up his investigation of President Clinton for perjury and obstruction of justice, according to CFRA. The market would bottom as the House began impeachment proceedings and then would later recover all those losses and hit an all-time high in November of that year.”

Obviously, we’re not even at this level and may never even get there since the event may never rise above a formal inquiry.

Possibly No Big Effect on Market

“From strictly a market’s point of view, the question will be, is it likely to succeed, and it does, what does a [Vice President Mike] Pence administration look like, and what does that mean for the 2020 election,” said Ed Keon, chief market strategist at QMA. “It is unlikely to succeed because of the composition of the Senate. If you net it all out, the end result is likely to be the status quo. I don’t expect that to have a big effect on the market.”

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James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.