(Reuters) – Investors are assessing how a potential deterioration in President Donald Trump’s health could impact asset prices in the coming weeks, as the U.S. leader remains hospitalized after being diagnosed with COVID-19.
So far, markets have been relatively bullish: Hopes of a breakthrough in talks among US lawmakers over another stimulus package gained the upper hand on a market sell-off on Friday with the S&P 500 losing less than 1 % and so-called safe haven assets. saw limited demand. News of Trump’s hospitalization at a military medical center near Washington, where he remained on Saturday, came after the talks ended on Friday.
Many investors, however, fear that a serious deterioration in Trump’s health less than a month before Americans go to the polls on November 3 could upend a U.S. stock market that recently posted its worst monthly performance since its liquidation. in March while causing turbulence in other assets.
If the president’s health is at risk, there is “too much uncertainty in the situation for markets to just ignore,” said Willie Delwiche, investment strategist at Baird.
The various outcomes investors are currently envisioning range from a rapid recovery that reinforces Trump’s image as a fighter to prolonged illness or death fueling uncertainty and draining the risk appetite in the markets.
If uncertainty persists, the tech and dynamic stocks that drove this year’s rally could be particularly vulnerable to a sell off, some investors said. On Friday, the high-tech Nasdaq fell more than 2%, double the drop in the S&P 500.
“If people … are getting nervous right now, it probably manifests itself in crowded trades like tech and mega-caps going a bit,” Delwiche said.
A record 80% of fund managers polled last month by BofA Global Research said buying tech stocks was the most crowded trade in the market.
The concentration of investors in large tech stocks has also raised concerns about their disproportionate influence on market movements in general.
The five largest U.S. companies – Google, parent company Alphabet, Amazon, Apple, Facebook and Microsoft – now account for nearly 25% of the S&P 500 market capitalization, according to research firm Oxford Economics.
DISCUSSIONS ON TAX STIMULES
Trump’s diagnosis has heightened attention to fiscal stimulus talks in Washington, with investors saying a deal on another aid package could act as a stabilizing force in markets amid election uncertainty.
U.S. House of Representatives Speaker Nancy Pelosi, a Democrat, said on Friday negotiations were continuing, but she is awaiting a response from the White House on key areas.
New stimulus measures could speed economic recovery from the impact of the pandemic, which has put millions of Americans out of work, and benefit economically sensitive companies whose stock market performance has lagged this year, investors said. .
For those who are underweight equities, “we would use this volatility as an opportunity to increase equities because we believe we are in an early economic recovery,” said Keith Lerner, chief market strategist at Truist / SunTrust Advisory.
Market action on Friday suggested some investors may have positioned themselves for a stimulus announcement in the middle of the sell-off.
The S&P 500 sectors representing industrials and financials, two groups more sensitive to a general economic recovery, gained 1.1% and 0.7% respectively, while the larger index fell.
Even with concerns about Trump’s condition, “the budget program was the loudest noise in the market,” said Arnim Holzer, macro and correlation advocacy strategist at EAB Investment Group.
Investor hedges against election-related market swings put in place over the past few months may have softened Friday’s drop and may, to some extent, dampen future volatility, said Christopher Stanton of hedge fund Sunrise Capital Partners LLC.
Despite Trump’s illness, futures on the Cboe Volatility Index continued to show expectations of high volatility after the November 3 vote, a pattern in line with concerns of a contested election.
Doubts over whether the Republican president would agree to hand over the keys to the White House in the event of a loss have grown in recent weeks. In his first debate with Democratic challenger Joe Biden on Tuesday, Trump refused to commit to accepting the results, repeating his unfounded complaint that mail ballots lead to voter fraud.
“If Trump’s health does not recover … then he could forgo running for office,” said Michael Purves, managing director of Tallbacken Capital Advisors. But “the markets are not turning away from the disputed electoral issue for the moment. “