“Downright Scary”

Meanwhile, at Wells Fargo Securities, interest-rate strategists Mike Schumacher and Zachary Griffiths see the process keeping a lid on Treasury yields as investors digest elevated political risk. They say the “animus in Washington could prove downright scary” because Congress will be unlikely to agree on a spending bill to boost the economy if a downturn emerges in the next six to 12 months. But sentiment could just as well flip, sending yields higher, if the House impeaches Trump and he’s then acquitted, they added.

That’s what happened in Clinton’s case, with the House voting in October 1998 to initiate an inquiry into allegations that stemmed from a sexual harassment lawsuit. The Senate then acquitted Clinton of two charges on Feb. 12, 1999, after falling well short of a two-thirds majority. Stocks rallied through most of that period.

Still, events like this are rare and past market action cannot be relied upon as a playbook because of the unique context that accompanied each, according to John Normand, JPMorgan’s head of cross-asset fundamental strategy. Equity and credit markets entered the Clinton impeachment drama while recovering from the Asian financial crisis, Russia’s default and the collapse of Long-Term Capital Management, Normand wrote in a note to clients. Meanwhile, dot-com stocks were booming.

In the six months before President Richard Nixon resigned amid the Watergate scandal, he notes, the S&P 500 slumped, 10-year Treasury yields rose 120 basis points, gold rallied and the dollar weakened. But this was a period when the Bretton Woods system of fixed exchange rates was disintegrating and an oil shock delivered both recession and rising inflation.

Complacency Risk

Meanwhile, the push to impeach Trump is beginning while global growth is slowing, market valuations are high and “classic late-cycle vulnerabilities” such as slowing profit growth and rising wage costs are building.

“It would be complacent to think that the impeachment process just adds another ring to the circus,” Normand wrote.

Pelosi’s decision to launch a formal inquiry came after a string of lawmakers from politically vulnerable House districts backed impeachment for the first time. A key question is whether House Democrats will remain unified under a process that Pelosi says will be led by the Judiciary Committee, but will involve five other panels and could extend beyond the Ukraine allegations into other areas. Senate Republicans have largely defended Trump despite an array of controversies since he came to power and Majority Leader Mitch McConnell took to the Senate floor Wednesday to mock the House impeachment inquiry.

“We know that House Democrats have been indulging their impeachment obsession for nearly three years now,” he said, calling it a “never-ending impeachment parade in search of a rationale.”