The positive COVID-19 tests of Donald Trump and his wife Melania cast a chill on U.S. financial markets on Friday, even as they braced for the possibility of his defeat in the November 3 presidential election.
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“The markets will be focused (…) on the state of health of the president,” warns Quincy Krosby, head of market strategy at Prudential Financial.
They want to know, according to this expert, if the White House host “has severe symptoms or not.” For obvious reasons, this is a dividing line ”.
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Wall Street finished in the red, with the Dow Jones losing 0.48%, the tech-heavy Nasdaq dropping 2.22%, and the broader S&P 500 index dropping 0.96%.
The VIX, dubbed the fear index, which measures the volatility of the New York Stock Exchange, for its part climbed 3.48%, suggesting that brokers and investors were much more worried than the day before.
Besides the stock market, other markets have also suffered the blow. A barrel of WTI oil in New York City lost more than 4%.
Sign of the ambient float, the dollar, considered a safe haven, was up even if its gains remained limited.
A deterioration in Mr. Trump’s health could lead to a temporary takeover by Mike Pence. The vice president and his wife tested negative on Friday morning, the White House reported.
Downside protections
If the news of the positive test of the American president and the abrupt suspension of his re-election campaign took the markets by surprise, investors had already anticipated a possible defeat of Donald Trump in the election on November 3.
“It’s not as if he is approaching the ballot as a favorite,” recalls Krosby.
“On the betting sites, Joe Biden (his Democratic opponent, editor’s note) gained ground towards the end of the so-called debate,” continues the expert, referring to the televised rat race between the two candidates on Tuesday.
Most polls also lean in favor of Barack Obama’s former vice president.
The fact remains that Donald Trump has focused a large part of his campaign on the good health of Wall Street, boasting countless times of the record level of the major stock indexes despite the health and economic crises.
The financial community has been a major beneficiary of Mr. Trump’s economic policies, including the substantial tax cuts that have benefited large corporations.
“There may be downward protections until more information is obtained”, anticipates Ms. Krosby, who believes that “transparency” on the state of health of the president will be necessary .
According to the expert, downturns are already clearly visible on the “options” market, where investors have started to reassess their positions.
“The short-term impact on the market is negative, because it reinforces the feeling of political disorder at a time when the economy is facing downside risks,” note analysts at JP Morgan.
“The medium-term consequence is more interesting, because the health of the president in office can influence the voting intentions”, they add.
A change of administration and majority in Congress is, they say, the only option for a new stream of economic aid for American businesses and homes to be adopted while the current negotiations between Democrats and Republicans are still in the air. dead end.
Risks
Historically, presidential elections in the United States have not necessarily been synonymous with ups and downs on the American Stock Exchange.
“Since 1960 and with the exception of 2008, the S&P 500 has risen or fallen by 1% on an average of nine days during the last quarter of a presidential year,” said Nicholas Colas, co-founder of the DataTrek research firm.
This represents much lower volatility than the cumulative average of all fourth quarters over the past 60 years.
This does not mean that 2020 will follow the same path, however.
“At the present time, there is the risk of a challenge to the result of the election or of a change in the head of the country which would push back a new budget aid package after the investiture in 2021, in full in the midst of a second wave of COVID-19 contaminations in the United States and in the absence of an adequate political response, ”describes Mr. Colas.