“At the margin, markets seem to have lowered the chance of prolonged uncertainty post-November 3”, Barclays writes, in a note assessing the ramifications of Donald Trump’s COVID-19 diagnosis.
Obviously, the knee-jerk reaction across markets overnight on Friday (i.e., following “the tweet”) was consistent with the notion that the president’s illness injected still more ambiguity into an already fraught environment. But by Monday afternoon, there were good reasons to believe that at least some traders and investors think Joe Biden’s chances of winning an indisputable victory next month are now higher.
If that’s true, you could cite a variety of factors, including the notion that between Trump’s diagnosis and positive tests for multiple GOP senators, aides, and advisors, The White House’s narrative about COVID-19 is in shambles. If nothing else, it undercuts any strategy that may have involved taking voters’ eyes off the ball. “It keeps the national conversation firmly focused on the virus, while the president’s campaign would prefer to focus on other topics, such as the economy”, Barclays went on to say, in the same note cited above.
Price action in rates to start the week suggests investors are now pricing in greater odds of fiscal stimulus. The selloff at the long-end, even if it abates over the next several sessions or weeks, appeared to be in part a reaction to rising odds of more government spending.
As noted in the linked post above, Trump’s exhortations to more stimulus over the weekend suggest that one way or another, recalcitrant GOP senators will be compelled to countenance another relief package. If the talks drag on past the election and there’s a Democratic sweep, more fiscal stimulus is a done deal, although the time frame might shift forward a bit.
Barclays agrees. “In mid-September, we stated that absent an economic or political trigger, Congress was unlikely to pass new fiscal stimulus”, the bank said Sunday evening, before suggesting that Trump’s illness may well have been the trigger.
“The president sent a public message to Congress to ‘work together and get it done’, which could help push any deal agreed between Speaker Pelosi and Secretary Mnuchin past reluctant Republicans in the Senate”, Ajay Rajadhyaksha and the bank’s head of public policy research, Shawn Golhar, wrote.
Note that the Russell 2000 has outperformed over the past two sessions. In the same vein, Value bested Growth by the third-widest margin of 2020 on Friday.
“Many are attributing the reason for the pop in stocks to encouraging signs for President Trump’s health, but the prospects of an undisputed election, along with the potential for a deal on fiscal stimulus, are what’s driving risk”, Bloomberg’s Vincent Cignarella said Monday afternoon. “Traders say the more clarity we have heading into Election Day, the better risk assets will fare — no matter who wins”.
This comes with all of the standard caveats, with the most pertinent simply being that the situation is extremely fluid.
Anything can happen when you have a pair of septuagenarians running for the highest office in the world at a time when an extremely contagious virus known for being especially cruel to septuagenarians is spreading virtually unchecked thanks, arguably, to the failures of one of those two septuagenarians.
On Monday afternoon, the president’s medical team confirmed that Trump will be headed back to The White House soon. Trump said he feels twenty years younger.