After a brief stumble, the stock market returned to its upward march last week and hit another high. This optimism has left many people confused, even infuriated. Why isn’t Wall Street being affected by all the crazy news — including rumors of impeachment — coming out of Washington? Where is the Trump Slump?
So far, there isn’t one, and that’s good news for investors but also even for ideological opponents of the president. I’ve examined stock markets in countries around the world, looking at data over the past three decades. My research shows that a country’s stock market often outperforms its peers when a new leader comes to power in emerging countries.
But there is no such positive effect in developed countries. Countries like the United States have structural guardrails in place, like strong independent courts, central banks and other checks on power, that make it more difficult for a single leader to change the nation’s direction.
Compare political scandals, for example. In Brazil, the market is struggling to recover after falling nearly 15 percent in dollar value on May 18 perhaps in response to the blockbuster news of a cover-up that could cost the president his job.
In the United States, the stock market fell during the Watergate scandal but for reasons that had little to do with Richard Nixon and much to do with the stagnant economy and inflation. And stock prices rose steadily during the investigations and impeachment of Bill Clinton, until the 1998 collapse of the hedge fund Long-Term Capital Management threatened to trigger a global financial crisis. The same holds for other political scandals, like Teapot Dome and Iran-contra.
It is a mistake, then, to view the markets through an ideologically colored lens
