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How Trump’s Covid-19 Case Could Impact Markets

Last Updated October 3, 2020 3:59 PM
Stephanie Bedard-Chateauneuf
Last Updated October 3, 2020 3:59 PM
  • Stocks and oil slipped on Friday after Trump tested positive for coronavirus.
  • Uncertainty is increasing volatility in the markets, sparking a rush to safe-haven assets.
  • Another stimulus deal would support the stock market.

Global stocks and oil slide after President Donald Trump announced that he and First Lady Melania Trump tested positive for the virus  just weeks before the U.S. presidential election.

Stocks Slide as Investors Rush Into Haven Assets

Wall Street and global stocks declined across the board on Friday. Commodity markets were also under pressure, with crude oil falling more than 4%.

s&p 500 index
The S&P 500 plunged on Friday, along with other stock indices as investors reacted negatively to Trump’s Covid-19 case. | Chart: Yahoo Finance 

Trump’s diagnosis came just over a month before election day–an event preparing investors for massive volatility already.

The VIX Volatility Index  peaked near 30 on Friday, well above the long-term average of around 20.

cboe vix
The VIX rose sharply on Friday morning. Trump’s diagnosis is adding volatility to the stock market. | Chart: Yahoo Finance 

Gold and U.S. Treasuries rallied as Trump’s Covid-19 case sparked a safe-haven rush. The U.S. dollar, seen as a haven in times of uncertainty, rose 0.7%  against the Australian dollar after the president tweeted confirmation of his diagnosis. The euro fell 0.3% against the greenback, while the dollar index rose 0.2% initially, but pared some of these gains.

J.P. Morgan’s David Kelly talks about the market impact of Trump’s Covid-19 diagnosis in the video below:

Trump’s disclosure has injected enormous uncertainty into the financial markets. Uncertainty is what investors least like.

David Rosenberg, chief economist and strategist at Toronto-based Rosenberg Research, told FOX Business: 

The one thing that we know with certainty is that uncertainty is anathema to investing in risk assets.

Investors will likely avoid riskier assets until there is more clarity on Trump’s health. That uncertainty will probably drive more investors to haven assets.

SEB chief commodities strategist Bjarne Schieldrop said :

News that Donald Trump has contracted Covid-19 adds to the bearish pressure. It was always a big wild-card in this election whether one of the candidates would contract C-19 thus placing the candidate on the side-lines.

Trump’s Diagnosis Might Not Hurt Markets That Much

The good news is that the impact of Trump’s diagnoses on the market could be short-lived.

Adam Sender, chief investment officer of SC&P, pointed out  that Trump’s diagnosis will probably not weigh on markets beyond the immediate term:

The market has gone through a lot of trauma this year and has rallied. While the president getting this is upsetting, we have no idea how sick he is and I don’t see this as being devastating news. I wouldn’t be surprised if the market rallies back pretty strongly.

In the end, markets will focus on whether Trump’s Covid-19 case affects the election outcome or public health policy. White House doctor Dr. Sean Conley said in a note  early Friday that the president and the first lady were both “well at this time.” He also said he expected Trump to “continue carrying out his duties without disruption.”

President Donald Trump is said to have minor Covid-19 symptoms. Watch the video below:

Jane Foley, head of foreign exchange strategy at Rabobank , said the fact that Trump is in good health could limit the degree of uncertainty in the markets for now:

But if that changes, the market is going to become potentially a lot more risk adverse.

Thomas Block, Fundstrat’s Washington policy strategist, said on “Squawk Box” Friday  that President Trump’s Covid-19 diagnosis could provide a sense of urgency for political leaders in Washington to strike a deal on another stimulus deal. Trump’s illness is a ‘wake-up call’ for policymakers that the virus will not go away.

The House passed the $2.2 trillion Democratic coronavirus stimulus bill Thursday night , but Republicans oppose this package. Stimulus hopes added some support to stocks Friday. Another stimulus deal would help boost stocks further.

Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com and should not be considered investment or trading advice from CCN.com.