How to trade Trump’s impeachment

If it arises, the impeachment of President Trump could prove to be one of the most unexpected and unpredictable political events in decades. But what would it mean for the markets?

US flag
Source: Bloomberg

There have been plenty of calls to impeach President Donald Trump throughout his presidency, stemming from alleged abuses of power, possible conflicts of interest, the fallout from the Russian hacking scandal, and more. But for now at least, the prospect remains unlikely.

However, if there’s proof that Trump has acted unlawfully – for instance if he facilitated collusion with Russia, or attempted to obstruct justice by blocking the FBI’s investigation into Russian hacking – then we could see the president impeached.

For Trump’s detractors, it’d be cause for celebration. But for the markets, the picture looks much more complicated. Here’s how to trade the fallout from a potential Trump impeachment.

When to trade Trump’s impeachment

Trump’s impeachment would likely involve months of inquiries and debate, providing plenty of opportunities for traders to react to developments and place trades in anticipation of price movements. The following events in particular are likely to be critical:

Announcement of evidence

Impeachment is enshrined in the constitution as the process by which charges can be brought against the president for ‘treason, bribery, or other high crimes and misdemeanors'. While this phrasing is somewhat ambiguous, what is clear is that some evidence of wrongdoing in one of these areas is required. The key, then, will be to look out for news that there is evidence against him and place any long-term trades at this moment.

It’s worth noting, though, that impeachment and conviction can only be achieved with majority votes in the House of Representatives and Senate respectively. These are both currently controlled by the Republicans, so the evidence would very likely need to be both politically damaging and ironclad to convince them to vote against their leader.

Bringing of charges to the House

Once there is evidence of wrongdoing, impeachment proceedings can be initiated by any authorised person – usually a member of the House. Alternatively, the House can pass a resolution to authorise an inquiry.

In either case there are two possible outcomes: the majority leader can either dismiss the case or put the impeachment charges to a vote. Whatever decision they make is highly likely to move the markets, so you’d need to be prepared to react quickly to their announcement.

Vote in the House of Representatives

Assuming charges are recommended by the majority leader, the next step would be a vote in the House of Representatives – where the president could be impeached on one or more of the charges by a simple majority.

The markets are likely to price in the expected result of such a vote ahead of time, so you may wish to pay attention to what high-profile Republicans are saying as a gauge of which way the pendulum might swing. Any difference between the expected and actual result could have a big effect on the markets.

Trial and vote in the Senate

If Trump is impeached by the House, he will remain in office pending a trial in the Senate, which could play out over several weeks. Removing Trump from office would require approval by a supermajority vote of two thirds or more, so pay attention to the evidence presented during the trial and how senators feel about the charges.

As before, the markets are likely to move in anticipation of the vote so any difference between the expected and actual result could have a big effect.

President’s resignation

Of course, it’s possible that Trump would rather resign from the $400,000-a-year position* than go through the rigmarole of impeachment proceedings and a trial. There is some precedent for this: Richard Nixon resigned after the White House tapes emerged, for example. Make sure you are ready to react quickly to the news, as a resignation is unlikely to be scheduled.

Nixon resignation

How could Trump’s impeachment affect the markets?

Predicting the effects of an impeachment on the markets is not a straightforward process. Such proceedings against presidents are extremely rare and, by their very nature, unique.

That’s enough to render any meaningful comparison between the Clinton and potential Trump impeachments nearly impossible. So while the S&P 500 was volatile around the release of the Starr Report and Clinton’s impeachment, we cannot say with any certainty what would happen if Trump were to face charges of his own.   

The difficulty of making predictions about market movements is compounded by the fact that Trump would remain in the Oval Office until convicted in the Senate, at which stage Vice President Mike Pence would take over according to the presidential succession plan. These factors provide a degree of continuity that might help ease market tensions.

However, those (major) caveats aside, here’s how the markets could shape up if faced with the uncertainty of a presidential impeachment:

Forex

The dollar has fallen under Trump’s presidency so far. Uncertainty surrounding impeachment would likely see it fall further – with the extent of the drop depending on how far the proceedings go. However, it could quickly claw back some of its value if the charges are ‘tabled’ or if Trump vacates the presidency, as either circumstance is likely to provide more certainty about the country’s economic future.

Watch: major pairs like EUR/USD and GBP/USD.

US dollar basket chart

Commodities

‘Safe-haven’ commodities like gold and silver are likely to rise – the result of increased investor demand for the relative shelter from market volatility they can sometimes provide. The fall of Trump’s pro-business administration, though, could see commodities that are used in industry fall.

Watch: iron, copper and zinc.

Indices and shares

Stock market indices have generally risen over Trump’s first year, but could take a hit if it appears the business-friendly president is about to be removed from office. Similarly, companies that have benefitted from Trump’s protectionist tariffs and policies – particularly firms in steel manufacturing, construction and infrastructure – may see value wiped off their shares if it look as though the administration, and agenda, will change.

Watch: Dow Jones, S&P 500 and US Tech 100

Bonds

Bond prices could increase if the dollar falls, as investors may pre-empt a rise in inflation and a Fed funds rate cut, though this effect would likely reverse rapidly once the charges against Trump are dropped, or he is replaced as president.

Watch: US Treasury Bonds and 10-Year T-Notes.

*Discover how much President Trump earns, and see how his salary compares to other world leaders’ pay packets, GDP and average earnings. View 'Pay Check' now.

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.

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