Why the Dow is plunging: Ginsburg replacement battle amplifies electoral nervousness

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Wait, aren’t stocks supposed to “climb a wall of worry?”

That old cliché of Wall Street in the bull markets was not in the spotlight on Monday like the DJIA Dow Jones Industrial Average,
-3,01%
dived more than 950 points in its low session and the S&P 500 SPX,
-2,42%
near correctional territory. But there were many concerns.

Lis: Monday’s stock market sell-off sets worst September in 18 yearsThey understand:

  • A growing number of COVID-19 infections that threaten to force further lockdowns of major European economies.

  • A heavy blow to bank stocks from reports alleging that many of the world’s most powerful banks have looked the other way for years when dealing with suspected money launderers and other shady clients.

  • And last but not least, the prospect of a horrific political battle to replace Supreme Court Associate Judge Ruth Bader Ginsburg, who died at the age of 87 on Friday.

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For US markets, perhaps the most shocking development has been the addition of a battle against the Supreme Court in the run-up to what is already potentially shaping up to be the most divisive presidential election since generations.

As the nation still mourned Ginsburg’s death, battle lines quickly formed. President Donald Trump has said he will announce a candidate on Friday or Saturday, while Democrats say the winner of the Nov. 3 election should pick the candidate after the Republican-led Senate in 2016 used that rationale to block a nomination by Barack Obama after the death. by Deputy Judge Antonin Scalia.

Already, investors were bracing for the possibility of a contested election result. The looming struggle over the composition of the Supreme Court “makes the US election even more important and heated than it already was – and harder to call,” Michael Every, global strategist at Rabobank, said in a note.

The battle makes all other matters secondary, he said. It’s a mix for Trump and Democratic challenger Joe Biden, as it shifts the spotlight on the economy (bad news for Trump) and the administration’s handling of the pandemic (bad news for Biden), he said. -he declares.

Analysts also expected the debate to further reduce the prospects that lawmakers and the White House would be able to strike a deal on a new round of coronavirus aid as the economy shows signs of slowing.

See: Analysts fear Ginsburg replacement fight will distract Congress from tax aid

Analysts led by Michael Wilson at Morgan Stanley, in a note on Monday, said the market faces two separate outcomes: either Congress fails to pass the CARES 2 bill and the recovery slows, or Congress passes bill, which is good for the stock market, but bad for the long term of the bond market.

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Ginsburg’s death “adds another element of risk to the earnings moment, and could weigh on the market as a whole in the short term,” they wrote.

And then there’s the general level of anxiety surrounding the election and what some commentators fear could be a slide into more conflict and even the potential for a constitutional crisis in the event of a contested election result.

Election: Democrats mark Ginsburg-linked donation boost, after Biden overtook Trump in cash last month

“This election was already seen as a potentially risky event; probably a lot more now, ”Every wrote.

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