On Trump’s Positive COVID Test

Editors’ Note: MarketMinder is intentionally nonpartisan. We favor no political party or politician and assess political developments solely for their potential economic and market impact.

Thursday afternoon, news broke that a top White House aide, Hope Hicks, fell ill with COVID—leading many to worry the virus would have spread to other officials, including President Donald Trump. At about 10PM Pacific Daylight Time last night, tests confirmed it: Both President Trump and First Lady Melania Trump were COVID-positive and quarantining. Stock futures immediately dipped—which persisted when markets opened Friday—as this October surprise stokes uncertainty somewhat. It also fuels a tremendous amount of speculation about what it all means for the election—and, correspondingly, stocks. In our view, investors should avoid this vortex of speculation. The impact on the election is entirely unknowable and stocks’ dip Friday is likely a short-term sentiment reaction—fleeting. Making too much of this is a bias-laden minefield, in our view.

Given that the US election is only a month away, it is perhaps natural that the minute this news hit, political pundits went into overdrive trying to discern the infection’s possible impact. Among the most common theories we have seen:

• Trump’s diagnosis and quarantine will hurt his chances, given that he relies on in-person rallies as a key aspect of his campaign’s get-out-the-vote strategy
• Trump’s diagnosis and quarantine will help his chances, as voters may be sympathetic to him—as they were UK Prime Minister Boris Johnson, who saw his approval rating leap by 22 percentage points during his ordeal.^[i]
• Trump’s diagnosis and quarantine will hurt his chances because it calls into question his approach and handling of the outbreak—especially if he is incapacitated for a stretch a la Johnson, forcing Vice President Mike Pence to take the wheel for a spell.
• Trump’s diagnosis and quarantine will help his chances if the symptoms prove mild and he governs from quarantine a la Brazilian President Jair Bolsonaro.

We could go on. There are no doubt countless others, but the point is that they are all contradictory and there is no way to assign probabilities to any of these outcomes. Nor is there any realistic way to foresee how bad a bout of COVID he has. Most reports presently indicate it is mild, but that could change. Similarly, there is no way to know how a mild or bad bout of the illness could affect Trump’s policy stance on virus response. Anyone arguing anything else at this point is guessing. Some will inevitably point to Johnson’s abundant caution following his infection, but that is a sample size of one, and shared hairstyle aside, Boris Johnson isn’t Donald Trump.

Unknown and unknowable factors are no basis for making an investment decision, in our view. Yes, S&P 500 futures sold off by nearly -2% at points Thursday night, but futures markets aren’t the most liquid and very often overreact to things (see the overnight selloff after Trump won 2016’s election for a classic example).^[ii] When US stocks opened Friday morning, they battled back. As we type this sentence at 8:33 AM Pacific time, the S&P 500 is down -0.82%—not noteworthy. It could of course head lower from here, but we doubt today’s headlines have a material, lasting impact on stocks.

That said, many investors seem to operate under the impression that Trump losing the election would be awful for stocks—and bias could have them see the dip as supporting evidence. In our view, this would be a mistake. We have 94 years of good US stock market data. They have done well—and poorly—under both Democrats and Republicans. The current administration took office in 2016, seven years into history’s longest bull market. The S&P 500 was already up 272.2% between the bull market’s start and Trump’s November 8, 2016 victory.^[iii] From then until the coronavirus lockdown walloped the bull market, stocks rose another 69.0%.^[iv] The S&P 500 eclipsed pre-financial crisis highs on a total return basis on April 2, 2012—during President Barack Obama’s first term. It hit many more thereafter and continued to under Trump. There were multiple bull market corrections (short, sharp, sentiment-driven drops of -10% to -20%) while Obama was in office. There were two in 2018, while Trump was president. On the economy, US GDP growth averaged 2.51% annualized in Trump’s 12 pre-COVID quarters in office.^[v] It averaged 2.38% in the preceding 12.^[vi] To sum up: The change in administrations in 2016 didn’t materially affect stocks or economic growth. While presidents do have an influence on markets—mostly through legislation and policymaking—it is a mistake to overrate it.

We wish the president and first lady a swift and easy recovery—as we would anyone suffering from COVID. But for investors, the lesson in all of this is that speculating on the unknowable in a field rife with bias is not a viable investment strategy. This year has been a test of investors’ poise and patience on many fronts. This October surprise is just the latest.

[i] Source: YouGov, as of 10/2/2020.

[ii] Source: Bloomberg, as of 10/1/2020.

[iii] Source: FactSet, as of 10/2/2020. S&P 500 total return, 3/9/2009 – 11/8/2016.

[iv] Source: FactSet, as of 10/2/2020. S&P 500 total return, 11/8/2016 – 2/19/2020.

[v] Source: US Bureau of Economic Analysis, as of 10/2/2020. Average annualized GDP growth rate, Q1 2017 – Q4 2019.

[vi] Ibid. Q1 2014 – Q4 2016.