First and foremost, we wish President Donald Trump and First Lady Melania Trump a swift and full recovery. This October surprise raises the already high level of political uncertainty markets are dealing with as Election Day approaches. As market participants digest this news and consider the possibility that the President may not be able to fulfill his duties, markets may become more volatile. However, we believe Trump’s odds of beating the virus, as the United Kingdom’s Prime Minister Boris Johnson and Brazil’s President Jair Bolsonaro did, are quite good. As the President and first lady of the United States, Donald and Melania Trump will be monitored closely and have ready access to the best health care in the world.
Here are some of the top questions surrounding today’s news and our immediate reaction and answers:
- Is this the October surprise? October is known for extremely volatile markets and some surprises. It’s safe to say this is officially our October surprise. The month has seen some spectacular crashes, but also some large gains. Some even say October is where bear markets go to die, marking the end of the “sell in May and go away” calendar effect. The bottom line is the month is one of the most volatile of the year—especially an election year—and we expect this October to be no different.
- Will he beat it? The President will be monitored constantly and have immediate access to the best healthcare in the world, and the virus was caught early, improving his chances. We believe his odds of beating the virus are high, as Prime Minister Johnson and President Bolsonaro did, even though his age puts him in a higher-risk category.
- How long will it impact the President’s schedule? The President is likely to observe quarantine for much of the recommended two week period, although he’ll be working throughout if symptoms allow. But we know the impact of the virus is idiosyncratic to each individual. Only time can answer this question.
- How will this affect the election? Markets appear to be pricing in former Vice President Joe Biden as the favorite, and this news likely does little to change that. If Trump bounces back quickly, he could potentially get a small bump. We continue to believe that this race is closer than the polls would suggest.
- Who else is sick? As of this morning, Vice President Pence and his wife Karen Pence have tested negative, as did Treasury Secretary Steve Mnuchin. We know that Trump advisor Hope Hicks has tested positive. Others in Trump’s close circle possibly may also be sick, and the immediate impacts are great unknowns. Biden is negative as of now as well.
- Could the President gain support? UK Prime Minister Boris Johnson gained support during his battle with COVID-19, so this could have similar impact with Trump. Additionally, President Ronald Reagan gained support after the failed attempt on his life in 1981.
- Will the 25th Amendment be invoked? We don’t think so, at least for now. Historically, the 25th Amendment has been invoked once under President Reagan when he had surgery (not for the assassination attempt) and twice under President George H.W. Bush for two colonoscopies. In all those cases the president was under anesthesia and literally could not make a decision if needed. That’s certainly not the case here and would take significant deterioration for it even to be a possibility.
- What does this mean for the next stimulus bill? It could speed up the two sides getting to an agreement if just to offset any perceived negative economic impact, not to mention that several major companies announced huge layoffs this past week and many people are in need of help. The stage is set for better news.
- Why aren’t defensive assets reacting more? The initial reaction has been quite muted from gold, the Japanese yen, and Treasuries. If this were a true risk-off moment, we’d expect more movement here. Although the market has not had much time to react, this is one positive, but something we will watch very closely.
- Is LPL Research changing its investment recommendations? As of now, we are making no changes to our investment recommendations as a result of this news. We will continue to look for opportunities on potential weakness to add to equities.
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