In the world right now, there is a pandemic, a slowdown in the international economic recovery, and presidential elections in the USA which has been extremely contentious and has raised the spectre of an American constitutional crisis. This was already irking the investors and the traders, when President Donald Trump announced that he has contracted the Corona Virus.
“It’s less of an event than you might think because it hasn’t come out of the clear blue sky, it’s just come in the midst of other confusion,” said Charles Geisst, who is a market analyst and a professor of finance at the Manhattan College. Even as the pandemic entered the White House, the S&P 500 went down just 1 percent, which the experts are calling ‘ordinary’ considering the fact that the US Labor Department reported that there has been a massive reduction in the number of jobs bought back by the employers in the month of September.
If we compare the effects of a President being in a vulnerable situation in the past, the decrease in shares was very minimal. It was nowhere near the massive punch of the 1955 news about President Eisenhower having a heart attack. This news was enough to send the S&P 500 down by 6.6 percent! When President Ronald Reagan was shot on March 30, in 1981, simply the news of the incident was enough to stop stock trading immediately, which helped limit losses to just about 0.3%.
“After an initial reaction, the news is only likely to have a lasting market impact if it’s seen as influencing the election outcome or public health,” Paul Donovan, the chief economist at UBS Global Wealth Management, said.
Vice President Mike Pence and Mr. Trump’s Democratic opponent, former Vice President Joseph R. Biden Jr. who shared a debate stage with Mr. Trump on Tuesday have both tested negative for the Corona Virus.
Now, lets consider the scenario where the President’s illness did not panic the investors much. Even then, it did add to the already growing doubts and concerns about a faltering market rally that has risen over the last few weeks. This is essentially because the traders and the investors are now considering the political risk in their ways.
“The prospect of Democratic victories in November has investors considering the potential effects of higher corporate taxes and increased regulation. And then there is the worrying possibility that Mr. Trump could refuse to accept the results of a vote that he loses, a possibility he has raised on a number of occasions.” A report in the NY Times suggested.
“A close and contested outcome with a drawn-out period of rancour and instability would be bad news for markets,” said Trevor Greetham, a fund manager at Royal London Asset Management.
A lot of experts also seem to have attached themselves to the possibility that the White House and the Democrats will reach an agreement to bring about another stimulus package.
Randy Watts, chief investment officer for O’Neil Global Advisors, a financial advisory firm, said Mr. Trump’s illness was all the more reason for investors to remain wary in the meantime. “I think that gives investors a lot of reason to pause and not commit new capital to the market until we’re a lot closer to the election being over.”
Stock futures fell more than 1 percent in overnight trading after Mr. Trump’s Twitter post, and shares were down about 1.4 percent at the start of trading in New York. But those losses were trimmed throughout the morning, thanks to strength in key sectors such as industrial and materials companies.
Some analysts also suggest that the diagnosis of President Trump’s illness has somewhat increased the chances of a significant Democratic victory in November and another round of fiscal stimulus.
Couple of days ago, Speaker Nancy Pelosi of California talked optimistically about a bipartisan deal for a pandemic package that could come from her recent talks with the Treasure Secretary of the country. This blatantly suggests that Trump’s positive test for COVID 19 could actually change the tenor of negotiations.
“This is either the market telling you that they are seeing increased odds of a stimulus or investors positioning for the potential of a blue wave,” said Yousef Abbasi, director of U.S. institutional equities at StoneX, a brokerage firm.
Some analysts also thought that the president’s diagnosis could help ease concerns among investors about the growing chances of post-election chaos.
Those worries have grown in recent weeks as Mr. Trump ramped up his false claims that mail-in ballots are rife with fraud and, more recently, repeatedly declined to commit to a peaceful transfer of power if the vote tally shows a Biden victory.
"But the whole issue around fiscal stimulus is complicated because, if Trump loses and the Democrats win and they get control of the Senate and the House, it makes fiscal stimulus assured, which will offset the impact of the tax hikes. The market would probably be happy to see a Biden presidency with a clean sweep." Said Sean Callow, currency strategist, Westpac, Sydney
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