The October surprise is here – President Donald Trump and his wife Melania tested positive for COVID-19. The leader of the world’s most powerful tested country announced the news on Twitter and was tested after his adviser Hope Hicks also contracted coronavirus.
The bombshell news has sent stocks falling and the dollar higher – and for three good reasons, that could continue pushing it lower.
1) Fiscal stimulus talks to collapse?
Trump’s Treasury Secretary Steven Mnuchin has been active in pursuing a fiscal stimulus deal with Speaker of the House Nancy Pelosi. However, other prominent Republicans such as White House Chief of Staff Mark Meadows and Senate Majority Leader Mitch McConnell have been skeptical about a large relief package.
The president’s leadership is critical in pushing a deal over the line and with the focus on the disease, it could remain stuck.
Markets proved that additional help from the government is often more important than who will be the next president. If negotiations fall to the wayside, shares could fall.
2) Tighter race?
Former Vice-President Joe Biden was in the same room with Trump for the presidential debate and is also a septuagenarian like the president. Investors seemed to get used to envisioning Biden replacing Trump, providing a safe pair of hands, providing more stimulus, and improving relations with the world – despite potential new regulation.
Concerns about Biden’s health – at least until he tests negative – may also rise. Moreover, sympathy towards Trump could push voters toward him and prompt tighter polls, raising uncertainty.
If Biden wins with a narrower gap, there is more room for Trump to cry foul and litigate the results, potentially triggering a constitutional crisis. That is the nightmare scenario that markets are wary of.
3) Pence-Pelosi dynamic duo?
The third layer of uncertainty comes from a potential deterioration in Trump’s health. Current reports are that the president and his wife are doing well and asymptomatic. However, if he were to fall ill, Vice-President Mike Pence would take over.
Pence is a conservative that may lead as a more traditional Republican, but his politics have been aligned with Trump. Democrat Pelosi, in her role as Speaker of the House, may become Vice-President, causing a peculiar situation.
Concerns about a lack of leadership also weigh on markets.
Conclusion
Uncertainty in markets is set to continue until Trump returns to normal activity, which could take more than a week. During this period, pressure on stocks will likely persist.
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