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.
Both the president and First Lady Melania Trump have mild symptoms and have begun quarantining. Democratic presidential candidate Joe Biden and his wife Jill both tested negative.
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 fiscal stimulus.
“The former was never taken seriously by the Trump administration, at tremendous cost to the lives, health, and living standards of millions of Americans,” wrote Jared Bernstein, a former Obama administration economic official on Friday. “The latter – stimulus – was initially implemented with real urgency, but the fact that such urgency has demonstrably faded is evident in today’s report.”
White House officials have repeatedly claimed recently that the recovery has been a quick, V-shaped one. However, Joe Biden has said the economy is on a K-shaped trajectory, with the wealthy doing well but many poor and middle-class Americans suffering.
The economic slowdown has once again raised concerns about a W-shaped recovery, in which the U.S. again plunges into a smaller recession.
“Economic activity recouped a portion of its pandemic-induced losses in Q3, but momentum is now considerably slower,” wrote analysts at Oxford Economics on Friday. “We are concerned about the chance of a ‘double dip’ recession with virus cases rising again, uncertainty persisting, and amid diminished expectations for new fiscal assistance.”
The analysts found that no state has been untouched by the coronavirus recession, though those states heavily reliant on tourism and hospitality have been predictably the hardest hit. During the second quarter, GDP contracted more than 40% at an annualized rate for Nevada and Hawaii, though New York, California, and Michigan were not far behind in losses, they found.
Other experts continue to stress that the recovery will be neither swift nor easy. Earlier in the week, Minneapolis Federal Reserve Bank President Neal Kashkari warned of a “muted economic recovery” that could start to put pressure on the financial sector.
“Unless something dramatic changes or we have a breakthrough sooner than we expect on vaccines, or there is some dramatic change in policy, I think we are in for a grinding recovery from here,” Kashkari said during a discussion with Wisconsin manufacturers on Wednesday.
One drop of good news was that consumer sentiment improved last month, according to the University of Michigan’s final reading for September. The monthly index rose 6.3 points over August’s reading, a far better improvement than the 1.6-point increase from July to August and certainly better than the 5.6-point drop after June. However, the index is still about 20 points lower than pre-pandemic levels.
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