Why did markets rise following Trump’s impeachment?
On the latest edition of Market Week in Review, Director of Client Investment Strategies Mark Eibel and Head of AIS Business Solutions Sophie Antal Gilbert discussed market reaction to the China-U.S. trade deal, Brexit and the impeachment of U.S. President Donald Trump.
Markets react to Trump impeachment
In the days leading up to President Trump’s impeachment by the U.S. House of Representatives on 18 December, markets stayed fairly calm, Eibel noted - before rising the following day. Both the S&P 500® Index and the Dow Jones Industrial Average jumped 0.5% on 19 December, establishing new all-time highs, he said. "While this may seem strange, it’s important to remember that markets don’t like uncertainty - and when it comes to impeachment, there’s been a high degree of certainty as to how the process will likely play out," Eibel stated.
He explained that the House’s impeachment of Trump was already widely anticipated by markets, meaning the news this week came as no surprise. On the same note, the market is also very doubtful that the U.S. Senate will vote to remove Trump from office, Eibel said. "Essentially, the market is confident in the outcome of all of this - which is why we haven’t seen much volatility of late," he concluded.
Brexit update: 31 January departure date looms
European markets and the British pound rallied in the wake of the Conservative Party’s big win in the 12 December UK election, Eibel noted, before cooling off a bit the week of 16 December. Why? Markets are now processing what’s next for Brexit, he said, noting that the calendar continues to inch closer to 31 January - the date when the UK will likely leave the European Union.
"With a large majority comes a feeling of power," Eibel said, "so now the question for markets has become centered around exactly what UK Prime Minister Boris Johnson will do with his newfound advantage in Parliament." Markets are always looking ahead, he explained, adding that he expects the Brexit saga to continue making headlines in 2020.
China-U.S. trade deal: Buying the rumour, pausing on the news?
In similar fashion, markets also surged initially on the news that the U.S. and China had reached a phase one trade deal, Eibel said, before calming down the week of 16 December. "Markets wanted some sort of clarity on trade, and the 13 December agreement between the two countries achieved that - but now, markets are looking ahead to what a phase two deal may look like," he explained. In addition, markets are also processing the specifics on the 13 December agreement, Eibel said, which has helped take a little bit of energy out. "As with Brexit, we’re once again seeing the theme of markets buying on a rumour, then pausing a bit in the aftermath of the actual news," he stated.
2020 outlook for markets
Eibel wrapped up the segment - and the final Market Week in Review of the year - with a look back at 2019, and a look ahead to 2020. "It’s hard to find any lowlights as it relates to overall market performance for the year," he said, explaining that virtually every asset class will end 2019 with positive returns.
"I don’t think anyone foresaw the level of returns we’ve seen globally this year," Eibel said, emphasising that 2019’s strong performance is a great example of the importance of sticking to an investment plan.
As for how 2020 may pan out, Eibel expressed doubt that it will perform as strongly as 2019. "I think we’ll be in a more muted environment next year, but there will probably still be some opportunities in equity or fixed income markets," he explained. In addition, if manufacturing activity outside the U.S. continues to improve, Eibel believes there may be better opportunities in non-U.S. markets in 2020. He also predicts additional volatility in the year ahead, particularly surrounding Brexit and the November presidential election in the U.S.
That does it for Market Week in Review this year. On behalf of the entire team, happy holidays. Please join us again in early January.
Any opinion expressed is that of Russell Investments, is not a statement of fact, is subject to change and does not constitute investment advice.