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What Trump having covid means for the stock market

By October 2, 2020 No Comments

President Trump has Covid – what does that mean for stocks? I have three quick takeaways and I’ll address them in more detail below:

  1. Markets hate surprises, but is this a surprise?
  2. This may increase chances for a stimulus bill before the election.
  3. This likely increases Biden’s odds of winning and makes him an even bigger favorite.

Is Trump getting covid a surprise?

The market generally hates surprises. We’ve discussed this before in our column about known risks and unknown risks. At first glance, this would definitely appear to be an unknown risk, or something that likely wasn’t priced into the market. We’ll learn more from the market’s subsequent reaction today. However, is this really a surprise to the market? The President has held mega rallies and multiple members of his staff have already tested positive in recent months. While unexpected and not desirable, it’s unlikely the market didn’t view this as a possibility on at least some scale.

More stimulus coming now?

Everyone agrees there is a need for a second stimulus package but no one agrees on how big it should be. The President has taken more of a hands off approach as he focuses on his reelection campaign. He’s also been buoyed by improving economic data that suggests maybe, just maybe, we don’t need a second stimulus, at least not right now. The market has seemed resigned to the idea that a second package, if it comes, would have to wait until after the election. But maybe that changes now? It’s possible that the President’s personal experience with the virus may motivate him to pressure republicans to get a deal done.

We all have had personal experiences in our lives where we didn’t take something as seriously as we needed to until a wake up call of sorts. Could this be the President’s wake up call?

Good news for Biden?

At the risk of being insensitive, this is all probably good news for Biden. The market already appeared comfortable with him winning the election, and news of Trump’s positive Covid test has made Biden an even bigger favorite in the betting markets. A Biden victory likely comes with at least a $2 trillion stimulus bill, and that’s a positive for markets. Also, that this news is breaking with four full weeks until the election gives the market even more time to price in a possible Biden victory. And that’s a positive for investors because it gives us more market information to evaluate.

What to watch

There is no doubt that the President contracting Covid will cause increased volatility in the coming days/weeks. However, doomsayers would tell us that the market should get absolutely destroyed off of this news. To me that means stocks should be down at least 5% within the next 2-3 days (futures are currently down 1.50% as of this writing). So if that doesn’t happen, we could surmise that the market wasn’t as surprised by this news, or concerned by it, as you might initially think. This might also increase the chances of a stimulus package prior to the election, something the market doesn’t expect right now. Lastly, Trump’s positive Covid test has increased Biden’s odds of winning the election, but that’s something the market appears to have already started to price in.

You can book a meeting if you’d like to discuss how this latest news, or anything regarding the election, may impact your investments:

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