Traders Warn of Market Volatility as Trump Tests Positive
(Bloomberg) — Intense volatility, a stock slump and more delays on a stimulus package are some of outcomes investors are considering after President Donald Trump tested positive for Covid-19.Trump’s diagnosis adds another element of uncertainty to a market that’s already been sizing up the potential for a legal battle or political chaos after the Nov. 3 vote. Now, investors are contending with the possibility of Trump’s ill health and how it could affect the U.S. government.“The market move is less about the election and more about the possibility that the U.S. president might become incapacitated,” said David Stubbs, head of markets strategy at J.P. Morgan International Private Bank. “This would inject significant uncertainty into the policy and geo-political outlook. That is a clearly a risk-off event and markets are acting as such.”While markets were broadly lower on Friday, the retreat was calm and orderly. U.S. equity futures slumped 1.6%, with smaller declines in Asian and European stocks. The Chicago Board Options Exchange Volatility Index rose to 29, reaching the highest level in only a week. Haven assets, such as the dollar and gold, were largely steady.Other investors said Trump’s positive test would largely be a non-issue for markets in the longer term, especially if he shows no symptoms.This is what other investors are saying:10% Correction“This will induce nervousness in the markets and we could see a 10% correction in U.S. equities that will likely drag down Asian equities for the balance of the year,” said Gary Dugan, chief executive officer at Global CIO Office.“Longer-term, people will see a sharper contrast between Asian and U.S. equities. Asia has political stability and strong technology companies in the north. For people looking to allocate globally, this just makes Asia more attractive.”Rebound Potential“If Trump is just positive but not ill, markets could rebound,” said Patrice Gautry, chief economist at UBP in Geneva. “U.S. institutions are solid and Vice President Pence should lead campaign and affairs if needed.”“Trump may continue to manage from the White House, so economically the damages are limited as long as he is just positive but not really ill.”Election Spanner“It throws a spanner into the works ahead of what is already a divided and bitterly fought election campaign,” said Paul Craig, portfolio manager at Quilter Investors.“Mega-cap valuations in the U.S. remain stretched, so any bit of news that increases that uncertainty is ultimately going to weigh on market sentiment.”No Lasting Issue“I can’t see President Trump’s positive test being a lasting issue for markets past the initial shock, which is now subsiding,” said Roger Jones, head of equities at London & Capital.“The only way this could develop into an issue is if the election has to be postponed, then there might be a big public reaction,” he said. “However, there is over one month to election day, so it seems improbable.”Hedge Against S&P“Investors should hedge themselves against S&P,” said Justin Tang, the head of Asian research at United First Partners in Singapore.