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NEW YORK: Investors are evaluating how a possible deterioration in President Donald Trump’s health could affect asset prices in the coming weeks as the American leader remains hospitalized after being diagnosed with COVID-19.
So far, markets have been comparatively optimistic: Hopes for a breakthrough in talks among US lawmakers about another stimulus package mitigated a stock market sell-off on Friday (October 2), with the S&P 500 losing less. 1 percent and so-called safe haven assets that have limited demand.
The news of Trump’s hospitalization at a military medical facility outside Washington, where he remained on Saturday, came after the negotiation ended on Friday.
Yet many investors are concerned that a serious deterioration in Trump’s health less than a month before Americans go to the polls on Nov. 3 could affect an American stock market that recently posted its worst monthly performance since its liquidation in March, while causing turmoil in other markets. goods.
If the president’s health is in jeopardy, there is “too much uncertainty in the situation for markets to just shrug,” said Willie Delwiche, investment strategist at Baird.
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The various outcomes investors are currently forecasting range from a rapid recovery that reinforces Trump’s image as a fighter to a prolonged illness or death that fuels uncertainty and saps the appetite for risk in the markets.
If uncertainty persists, the tech and momentum stocks that have led this year’s rally may be particularly vulnerable to a sell-off, some investors said. The high-tech Nasdaq fell more than 2 percent on Friday, twice the fall of the S&P 500.
“If people … get nervous right now, it’ll probably show up in crowded deals like tech and megacap that fall apart a little bit,” Delwiche said.
A record 80 percent of fund managers surveyed last month by BofA Global Research said buying technology stocks was the “busiest” deal on the market.
Investors’ concentration in big tech stocks has also raised concerns about their enormous influence on market movements in general.
The five largest US companies – Alphabet, Google’s parent company, Amazon, Apple, Facebook and Microsoft – now account for nearly 25 percent of the S&P 500’s market capitalization, according to research firm Oxford Economics.
FISCAL ENCOURAGEMENT TALKS
Trump’s diagnosis has heightened attention to fiscal stimulus talks in Washington, with investors saying a deal on another aid package could act as a stabilizing force in markets amid election-related uncertainty.
The Speaker of the US House of Representatives, Nancy Pelosi, a Democrat, said on Friday that negotiations were continuing, but she is awaiting a response from the White House in key areas.
New stimulus could accelerate economic recovery from the impact of the pandemic, which has put millions of Americans out of work, and benefit economically sensitive companies whose stock performance has lagged this year, investors said.
For those who are underweight equities, “We would be using this volatility as an opportunity to ramp up equities because we believe we are in an early stage of economic recovery,” said Keith Lerner, chief market strategist at Truist / SunTrust Advisory.
Market action on Friday suggested that some investors may have been positioning for a stimulus announcement amid the sell-off.
The S&P 500 sectors that represent the industrial and financial sectors, two groups that are most sensitive to a broad economic recovery, rose 1.1% and 0.7%, respectively, while the broader index declined.
Even with concerns about Trump’s condition, “the fiscal program has been the loudest noise in the market,” said Arnim Holzer, macro and correlation defense strategist at EAB Investment Group.
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Investor hedging against election-related market fluctuations implemented in recent months may have smoothed out Friday’s slide and could, to some extent, mitigate future volatility, said Christopher Stanton of hedge fund Sunrise Capital Partners.
Despite Trump’s illness, futures on the Cboe volatility index continued to show expectations of elevated volatility after the Nov.3 vote, a pattern consistent with concerns of a contested election.
Lingering doubts about whether the Republican president would agree to hand over the keys to the White House if he loses have grown in recent weeks. During his first debate with Democratic challenger Joe Biden on Tuesday, Trump refused to commit to accepting the results and repeated his unfounded complaint that mail-in ballots would lead to voter fraud.
“If Trump’s health doesn’t recover … then he could stop running the election,” said Michael Purves, CEO of Tallbacken Capital Advisors. But “the markets are not getting out of the disputed election right now.”
