Investors were caught off guard by news that President Trump was Covid-positive, though they were able to avoid yet another catastrophic drop in indices to round out the week.
MANHATTAN (CN) — Markets hoping for relative calm to close out the week were shellshocked by news that President Trump and the first lady both contracted Covid-19.
The news broke late Thursday evening, before U.S. markets opened and hours after it was reported that administration official Hope Hicks had tested positive for the virus.
The news of Trump’s infection dwarfed all other economic indicators, even drowning out the residual cacophony from Tuesday’s chaotic presidential debate.
Early in the morning, markets looked incredibly bleak, with Dow futures plummeting more than 400 points, but by the closing bell it had recouped some of that to drop only 133 points, about a 0.5% decrease.
The trajectory for the S&P 500 was similar, with a roughly 1% daily decrease, though the Nasdaq was unable climb back over the hill, finishing 2.2% down.
The fluctuation in equities was due to the one thing no investor wants: uncertainty regarding the future.
“Overall, the news adds to uncertainty going into the election,” wrote UBS Chief Investment Officer Mark Haefele. “Given the divergent policy platforms of the two candidates, investors should ensure that their portfolios are well diversified going into the election.”
Abroad, investors were also initially rattled by the news but were able to pull out without many losses. In Asia, most markets closed down slightly, though South Korea’s index gained nearly 1% while the Hong Kong exchange finished up 0.8%.
In Europe, most major markets actually avoided losses, with only Germany’s market declining 0.3%. The pan-European Stoxx 600 gained 0.2% for the day.
“On my list of reasons to sell this market (and there is a list to buy as well), the POTUS getting Covid was not on it,” wrote Peter Boockvar, chief investment advisor at Bleakley Advisory Group, in an investor’s note. “Not because it was an oversight as a possibility but because I didn’t think it really would matter in terms of the election, policy, congressional negotiations, and certainly not the economy.”
Many scientists have predicted a coming surge in coronavirus cases as the weather in the United States cools. To date, more than 34 million have contracted Covid-19 worldwide, according to data compiled by Johns Hopkins University. In the United States alone, just shy of 7.3 million have been confirmed infected while more than 208,000 have died.
The impact of the news could also amplify an already rollercoaster presidential campaign and make it harder for the polarized political parties to agree on a stimulus package.
“IF Trump’s Covid makes a Dem sweep more likely AND the Dems will do a huge stimulus in Feb THEN I don’t understand the sell-off in stocks,” tweeted Ian Shepherdson founder of Pantheon Macroeconomics. “Unless it’s because people think there’s now less chance of a stimulus bill before the election?”
On Thursday, House Democrats passed a $2.2 trillion fiscal stimulus package, though it received no Republican support and is not expected to gain traction in the Senate without the White House getting behind it.
On Friday, House Speaker Nancy Pelosi said during an interview on MSNBC that Trump’s contraction of coronavirus “kind of changes the dynamic” of negotiations and that she hopes it shows Republicans the seriousness of the virus.
Most investors expect another stimulus package to pass eventually but a growing contingent believe it could take until after Election Day.
“We expect near-term volatility to persist in the lead-up to the U.S. elections next month but believe a new fiscal stimulus will be passed eventually,” Haefele wrote.
Lost amongst the din was the last jobs report before Election Day, which showed the U.S. added 661,000 new jobs last month. The amount was quite a bit less than the 900,000 jobs many economists had predicted, and a stark contrast to the 1.5 million jobs added in August, the 1.8 million jobs added in July, and the 4.8 million jobs in June.
Worse still, the current 7.9% unemployment rate is the highest jobless rate heading into a presidential election.
Some left-leaning economists say the recovery slowdown is to be expected given the Trump administration’s approach to virus control and the pressure for…