Trump illness combines with US jobs gloom to give markets a cold
Day of volatility on Wall Street sees Dow Jones fall by as much as 1.1pc while Brent crude drops to below $40 a barrel as investors are spooked
DONALD TRUMP’S shock Covid diagnosis combined with weaker than expected US job numbers to trigger a day of market volatility.
On Wall Street the Dow Jones fell as much as 1.1pc and the S&P 500 was down 0.7pc as investors were spooked by the president’s positive coronavirus test. The FTSE 100 fell as much as 1pc in early trade before reversing its losses to close up 0.4pc or 22.67 points at 5,902.12.
Brent crude oil fell by as much as 3.5pc to below $40 a barrel while gold rose more than 1pc as investors scrambled for safe haven assets.
Fears for the president’s health were accompanied by signs that the economic recovery is slowing. Payrolls climbed by another 661,000 in September, the Bureau of Labour Statistics said, pushing unemployment back below 8pc for the first time since March.
But this is a smaller improvement than hoped, down from almost 1.5m extra jobs in March as the recovery began.
Economists had expected employment to climb by as many as 850,000 jobs in the month.
Unemployment is now 7.9pc, down from a peak of almost 15pc in April, but still more than double the 3.5pc rate in February on the eve of the pandemic.
That equates to 10.8m fewer people on payrolls and means that just under half of the fall in full-time employment has been unwound so far, leaving analysts worried for the state of the world’s largest economy.
The strength of the economy is expected to be a key factor in the US election coming up next month, so disappointment in the jobs market could harm President Trump’s hopes of winning a second term.
If it is going to happen, it will happen in the next four weeks. At the start of every October, investors and traders can be forgiven for already feeling a little uneasy. Traditionally, it is the month for a stock market collapse. With valuations already sky-high, a contested election looming, key vaccine data on a knife-edge, and with the virus resurgent around the world, there were already plenty of reasons to feel nervous. Now, with President Trump testing positive for Covid-19, it promises to be a wild ride.
In truth, however, Trump’s positive test won’t be the trigger for a full-scale collapse. If he suffers mild symptoms, it won’t make much difference either way. If he goes into intensive care, then either the more moderate vice-president Mike Pence steps in, or else Joe Biden wins, with an expansionary fiscal programme, while the civil unrest a Trump second term might spark will be avoided.
Either way, the markets and the economy won’t move dramatically in either direction. There was a strong rally in equities after Trump was elected, but neither his illness, nor his re-election or defeat, will have anything like the same impact.
It might be the autumnal weather, the approach of the year-end, or else a sheer coincidence but October has always been the month of maximum risk for investors. In stock market terminology, the phenomenon even has its own name, the “October effect”, referring to the fact that the 10th month of the year typically witnesses a worse performance than any other (although September is bad as well).
It has certainly been the month for the really big crashes: the bank panic of 1907, the crash of 1929, and Black Monday of 1987, all took place in October. A diagnosis of the president of the United States with a potentially fatal virus – and one that especially hits overweight men in their 70s – on the second day of the month will have plenty of investors looking nervously at the history books and wondering if October 2020 is about to join that infamous list.
Even before that news of the diagnosis broke, there was no shortage of reasons to feel uneasy. If you are looking for triggers for a crash, it is hard to know where to even start. The markets have been on an extraordinary bull run after the March correction, and valuations already looked overstretched, especially of the big technology companies.
Covid-19 is resurgent around the world, with much of Europe going into semi-lockdown to try to keep infections under control: anyone who thought this was going to be over quickly, and the economy would quickly bounce back, will have to reassess their forecasts. Key vaccine data is due this month from companies with potential shots such as Pfizer and Moderna, and if those disappoint, or the rollout of a shot is delayed, that will come as a huge blow. Most of all, the presidential election is looming, with the prospect of a contested result and perhaps weeks of legal argument before a result is declared (and even then Trump might refuse to accept it). If you are looking for a reason to sell, you can take your pick.
Against that backdrop, Trump’s positive test for Covid-19 could hardly have come at a worse time. Stock markets around the world sold off as the news broke, and we can expect that to last well into next week.
Traders will be anxiously watching the medical updates from the White House. Typically, Covid-19 starts in a mild form, and then the complications start to emerge. When Boris Johnson caught the virus, he isolated for a few days, then went to hospital and then into intensive care. If Trump follows the same path, there will certainly be a reaction. The American government will be paralysed at the worst possible moment. Decisions on controlling the virus, and licensing a vaccine, will be postponed, while nothing will be done to rescue the economy. There is never a good time to have a sick, or even dying, president. But this is an especially bad one.
And yet, the important point is surely this. Trump’s diagnosis won’t necessarily be the trigger for a full-scale crash. In truth, it might not change that much, and certainly not for the worse. If he is fine, then nothing much changes.
If the president is very sick over the next couple of weeks, what happens? Pence steps in to run the administration and, in the worse case, takes over as the Republican candidate in November. Pence is a more moderate, sensible politician, and could hardly be any more chaotic than his boss. Alternatively, it makes a victory for his Democratic challenger Biden more likely. But the markets are hardly likely to be rattled by a change of regime at the White House. Biden is a moderate liberal Democrat who worked alongside Obama for eight years. His platform promises an expansion of spending, and that will be good for the economy, and certainly the stock market. His election is likely to be mildly positive for equities.
When Trump won the election in 2016, there was a significant rally on
‘Trump’s diagnosis won’t necessarily be the trigger for a full-scale crash. In truth, it might not change that much’
the stock market. It came to be known as the “Trump bump” (and typically he boasted about it non-stop).
His tax cuts, especially for corporations, a wave of deregulation and a huge fiscal stimulus lifted the US growth rate, and that was rightly reflected in the equity markets. His re-election, if that is what happens, was never likely to have the same impact. Whatever their views of his rhetoric and record, everyone will wish Trump a speedy recovery.
There will be some days of wild trading on the markets as details emerge of how his immune system is responding to the virus. In reality, however, it shouldn’t make much difference. October is always a volatile month, but Trump’s diagnosis shouldn’t trigger a full-scale collapse.