Trade the Congressional Effect: How To Profit from Congress's Impact on the Stock Market

Resignations

The title of this small section is resignations, although there has been in fact only one resignation, that of President Richard Nixon. In 1974, President Nixon was undone by the Watergate scandal. The House Judiciary Committee charged him with “high crimes and misdemeanors” in anticipation of impeaching him. On August 8, 1974, he resigned. It is clear in hindsight that his resignation, coming in the middle of a deep recession, aggravated market uncertainty. From the date he resigned through the end of 1974, the Dow Jones Industrial Average (DJIA) fell another 24.6 percent, even adjusting for dividends. While President Nixon was not formally impeached, there was little doubt he was going to be impeached—and probably convicted—if he had not resigned. His resignation came during the worst recession at that time since the Great Depression.

Having pointed out that impeachments can be good for the market and resignations can be bad, I think the bigger message is that the government tends to act as an amplifier of the economy even though it is trying to be a counterweight. In good times, impeachment can help the market and therefore the economy. In bad times, dysfunctional government makes the economy worse. Resignations to head off an impeachment fall under that category.