The US president’s diagnosis has thrown a monkey wrench into the election race, but markets are responding surprisingly well.
Stocks rallied in Asia and US stock futures opened higher Monday as markets showed little impact from the news regarding President Donald Trump’s COVID-19 diagnosis.
Even in the immediate aftermath of the news, currency and Treasury markets, which are traditionally more vulnerable to economic and geopolitical challenges than stocks, did not appear concerned.
Friday’s 1% fall for the S&P 500 was only the seventh biggest decline for the index from 11 negative sessions over the past month of trading. In fact, two sectors—industrials and financials, which are generally more sensitive to the overall health of the economy—rallied 1.1% and 0.7%, respectively, on Friday.
Interestingly, despite Trump’s diagnosis, futures on the VIX still show traders are far more worried about the time period after the Nov. 3 election. The 2020 election is the most expensive event risk on record, per Bloomberg—with insurance bets on implied volatility six times their normal level, according to JPMorgan analysts.
The reasons are various but will not be helped by threats from the US president during last week’s televised debate with Democratic candidate Joe Biden that he would deem a Democratic victory as fraudulent, an issue that could potentially result in a constitutional crisis as the likelihood of Trump nominee Amy Coney Barrett being appointed to the Supreme Court before the election takes place looks slim.
While it’s unclear as yet how Trump’s illness will impact the election, it’s hard to believe that it won’t. The president will no longer be able to hold the large rallies that have been characteristic of both his campaigns. It will be difficult for him to mock the safety-first approach shown by his rival, whom he has accused of “hiding in his basement.”
It will also be trickier for him to shift the focus from his own handling of the outbreak, in a country which has recorded the world’s highest number of coronavirus deaths to date, and on to ground where he feels more comfortable.
Barring an unfortunate decline in President Trump’s health which forces him to withdraw from the race, the focus of markets is still on what happens after the Nov. 3 election and the potential for both a political crisis and further protests on the street.