Special counsel Robert Mueller appears before Congress on Wednesday starting around 8 a.m. Eastern time. His testimony will dominate the headlines, but should stock market investors care?
The answer is: It depends.
Anything is possible, but Congressional testimony doesn’t tend to roil markets, at least according to Barron’s findings. That is good news for investors who want to take a break from trading and tune into C-Span. There are, however, a couple of caveats.
To evaluate the potential impact of Mueller’s testimony on markets, we looked back in U.S. history to compare market reaction to major news events with reaction to high-interest testimony. Our list includes President Kennedy’s assassination in November 1963; the Iran Contra hearings in May 1987; the O.J. Simpson murder trial verdict in October 1995; the 9/11 attacks on the Pentagon and World Trade Center; Christine Blasey-Ford’s testimony in September 2018; and Michael Cohen’s testimony from February 2019.
It appears that testimony alone can impact trading volumes, but doesn’t lead to anomalous stock-price movements. Market volume declines linked to a big news happening can be between 5% and 15%. Stock market prices, however, look just as likely to rise as fall when testimony concludes—just as on any other day in the market.
Events are different. Events impact markets. President Kennedy’s death and 9/11 are in that category.Stock market volumes shot higher and markets fell—by 2.9% and 7.1%, respectively—in the aftermath of those two tragedies. (The market didn’t open for trading on 9/11; the 7.1% drop was recorded on Sept. 17.)
Why did Barron’s focus on stock-trading volumes? Because volumes matter. They are a signal to investors that something is up. What’s more, volume precedes price—meaning high or low trading volumes are part of the reason stock prices move in either direction. The day of the flash crash in May 2010, for instance, stock-market volumes jumped about 75% compared with the previous week. The market swung by almost 9% that day. Think of high volume as like trying to force more water through a small pipe—the outflow can be difficult to control.
The question for investors to think about now is whether Mueller’s appearance before Congress qualifies as “testimony” or an “event.” To be an event, something dramatic would have to occur. It is possible, but the market has already digested Attorney General William Barr’s summary and a brief statement from Mueller himself.
So Wednesday will likely be just a diversion for stock markets.
Write to Al Root at firstname.lastname@example.org