For the past few years, the stock market has been a roller coaster of ups and downs for a multitude of reasons. These days, the causes for the fluctuations vary: sometimes it’s because of a tweet, other times it’s in reaction to news headlines––headlines like those about the current impeachment hearings.

Although we can’t directly compare what is going on today with what happened during Nixon’s impeachment in the 1970s, we have to wonder if history will repeat itself.

former president Nixon being escorted around capitall hill in 1990
Shutterstock

How Impeachment Affects the Stock Market

From the beginning of the Watergate scandal to a few weeks after Nixon’s resignation, the U.S. stock market declined significantly as the nation’s financial markets reacted negatively to the unfolding political unrest.

Nixon’s impeachment and eventual resignation took a long time to play out. It was two years between the Watergate break-in and President Nixon’s resignation.

During those two years, the S&P 500 dropped -23.7%. In total, the Dow Jones Industrial Average fell about 40% from its peak in 1972 to its lowest point in 1974.

According to Matt Hylland, partner and financial advisor at Arnold and Mote Wealth Management, it is important to note that there was a lot going on at this time beyond the impeachment proceedings and the eventual resignation of President Nixon.

Is Impeachment Always to Blame?

Impeachment may result in a downturned stock market, but we should be careful not to put all the blame on one thing. The 1970s market drop coexisted with factors that may have had a more significant impact than the impeachment alone.

Other Factors that Affected the Stock Market in the ’70s:

  • The dismantlement of the Bretton Woods system and Nixon’s suspension of the dollar’s convertibility with gold devalued U.S. currency.
  • This decision, combined with the first oil shock in 1974, resulted in increased inflation and recessionary conditions.
  • In addition, the market experienced a period of stagflation and selloff. On the world stage, Egypt and Syria attacked Israel, kicking off a period of unrest in the Middle East.

It’s impossible to know how much the markets would have gone down if it weren’t for the oil embargo, war, or inflation.

In the opinion of Matt Hylland, the market conditions leading up to Nixon’s resignation played a big role in the resulting market deterioration. Even if there was no impeachment, it’s likely the stock market wouldn’t have looked so good.

Using the impeachment proceedings and Nixon’s eventual resignation as an example, Hylland suggests that investors should consider focusing more on the strengths and weaknesses of underlying markets rather than the noise of domestic politics.