Donald Trump's late-night revelation of testing positive for the coronavirus is having a sizable impact on markets already.
U.S. President Donald Trump has contracted COVID-19, the President said on Twitter. While the markets initially reacted negatively, it could potentially lead the S&P 500 recovery in the fourth quarter.
There are three possible catalysts for the S&P 500 in the upcoming months. They are the rising probability of a stimulus package, a rising dollar as a result, and an extended consolidation phase.
On October 2, House Democrats, led by the Democratic House Speaker Nancy Pelosi, approved a $2.2 trillion stimulus package.
But Republicans and the Trump administration swiftly rejected the proposal, criticizing the politicization of the stimulus.
A stimulus bill would massively benefit the S&P 500 and the Nasdaq Composite, which have struggled since September 2.
Apart from alleviating significant pressure from equities, it would also deliver direct checks to individuals. The last time the government sent direct stimulus checks, the S&P 500 rallied 11% in two months.
Yet, the stimulus package remains far from seeing a consensus between the Democrats and Republicans.
Senate majority leader Mitch McConnel said it is “inappropriate” to many things that don’t directly pertain to stimulating the economy. He said:
“What the Speaker did, even after coming down a full trillion dollars, is throw everything you can imagine into the package, including tax cuts for rich people in California and New York, and free healthcare for illegal immigrants. That sort of thing is not appropriate.”
Kayleigh McEnany, the White House press secretary, condemned Pelosi for “not being serious.” She said if Pelosi “becomes serious,” then the Trump administration would entertain a discussion.
The President’s unexpected contraction of COVID-19, which adds more uncertainty to the election, could lead the Republicans towards the stimulus.
With the election just over a month left, the Trump administration would likely be concerned about the stock market’s performance. The public could gauge the trend of the S&P 500 as the election nears, and that could sway voter confidence.
As such, there is an increased probability that the Republicans could reengage in discussions with the Democrats. When the stimulus gets approved, it will cause the S&P 500 to rally.
The financial markets are reacting strongly to the Trump COVID-19 contraction. Watch the video below:
The calls to Republicans to take the stimulus “compromise” are already rising.
Nita Lowey, the House appropriations committee chair, said the “economic catastrophe” has people and businesses crying out for action.
The recent proposal includes direct stimulus checks, emergency jobless benefits, and aid to small businesses. Lowey said:
“The health and economic catastrophe facing our country continues to cry out for urgent action. The American people cannot afford to wait until next year for action, so House Democrats are making good on our offer to compromise.”
A stimulus package approval would likely act as an immediate catalyst for the S&P 500, due to the direct checks. It could cause retail trading activity soaring once again, recovering the appetite for equities.
It would also cause the U.S. dollar to recover along with the economy, making equities more compelling in the near term.