The Investment Scientist

Watergate Period Stock Market Performance

Posted on: May 22, 2017

www.usnews.jpgAfter the Comey firing and the dropping of a few other shoes, there is enough talk about the similarity to Watergate that piques my interest to study the stock market’s reaction during the Watergate period.

The Watergate period started with the arrest of five burglars breaking into the DNC offices located in the Watergate Hotel on 6/17/1972 and ended with Nixon’s resignation on 8/8/1974. I split that time period into three different stages.

  1. The early stage: from 6/17/1972 to Nixon winning re-election on 11/11/1972.
  2. The middle stage: from 11/11/1972 to 10/20/1973 when Nixon fired Archibald Cox and abolished the office of the special prosecutor. Attorney General Richardson and Deputy Attorney General William D. Ruckelshaus resigned. The day’s events are commonly known as the Saturday Night Massacre.
  3. The final stage: from 10/20/1973 to 8/8/1974 when Nixon resigned.
The chart below is the S&P 500 during whole Watergate period …

_Enable image display to see chart_
Watergate was a slow, drip-drip development over a two year time-span. In the first stage, the market largely ignored what was going on, even celebrating Nixon’s landslide re-election and inauguration with a moderate rally.

In the middle stage, the market remained resilient despite ominous developments. It was not until the final stage, after the Saturday Night Massacre, that the market finally collapsed.

From peak to trough, the market dropped a total of 35%.

Keep in mind though, by writing this article, I am not predicting President Trump will face impeachment. For one thing, the House and Senate are not in the Democrat’s hands the way they were during the Watergate period.

Nor am I saying the market will drop significantly. I can’t emphasize enough I am not a fortuneteller. What is this that I am doing then?

It is a mental exercise that serves two purposes: 1) to bring caution back into your mind even as the market is breaking new highs; 2) and, should the market indeed drop significantly, you are not caught by surprise and panic. Bad things can happen to your investment when you are either exuberant or panicky.


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Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.


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