By Giles Coghlan, Chief Currency Analyst, HYCM
With only a few days left in office, Donald Trump is the first president in US history to face two impeachment charges. This comes following the storming of the Capitol building by pro-Trump supporters following a rally that challenged the outcome of the latest election. While the initial wave of protests has subsided and President Trump has called for calm, there are fears more rioting could be on the horizon following the inauguration of President-elect Joe Biden.
One would assume such a political event would send shockwaves through the financial markets. After all, the last time the Capitol building was attacked was during the war of 1812. However, many would no doubt be surprised to hear that the financial markets have remained unfazed by the latest turn of events.
In fact, US stocks rose to all-time high in the aftermath of the riots. With Congress confirming the election of Joe Biden as president on Thursday 7 January, the Nasdaq closed above 13,000 points for the first time in history. On top of this, the Dow Jones and S&P 500 also finished the day with impressive gains.
Having reviewed the performance of these markets, there are a clear number of factors that could explain why investors are rallying to stocks and shares at a time when the US is coming to terms with its deep political divisions. One is the prospect of substantial aid spending being approved as a consequence of the Democrats now having control of Senate. Another has to do with the rollout of a COVID-19 vaccine which could signify the beginning of the end of the pandemic.
Will news of Donald Trump’s second impeachment change all this? At the moment, it is difficult to tell. If we look at the performance of the financial markets during the first charge, the impact on the financial markets was minimal. In fact, the S&P 500 advanced to 3,205.37 points on 19 December 2019 during the first impeachment hearing. Investors were confident that there was little to no chance of the impeachment being successful given the Senate was controlled by the Republicans.
While this is no longer the case, the level of volatility triggered by Donald Trump’s second impeachment is set to be minimal. This is because the charge is being made to an outgoing President who only has a few days left in office.
Based on these trends, one could argue that investors are taking a long view when it comes to investing in the US stock market. However, we should not assume that these positive gains will continue if mass protesting and rioting is witnessed in the coming weeks. Should this occur, there is a chance of investors looking to safe-haven assets to protect themselves from volatile trading conditions. However, the important thing to remember is that investors recognise the US as a country of law and order where civil unrest is likely to be short lived and isolated to small areas.
Despite this, investors and traders should not be complacent but instead cognisant of all known risks. They need to ensure they are prepared to overcome sudden market shocks that could be triggered off the back of big political events. After all, in the world of investment, you never know what surprises could be lurking around the corner.
Giles Coghlan is Chief Currency Analyst, HYCM – an online provider of forex and Contracts for Difference (CFDs) trading services for both retail and institutional traders. HYCM is regulated by the internationally recognized financial regulator FCA. HYCM is backed by the Henyep Capital Markets Group established in 1977 with investments in property, financial services, charity, and education. The Group via its relevant subsidiaries have representations in Hong Kong, United Kingdom, Dubai, and Cyprus.
