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Coronavirus in the White House

Roils markets briefly, but what does it really portend?

Markets tend to “shoot first and ask questions later” in response to unexpected events, and this was certainly the case early on the morning of Friday, October 2. The positive coronavirus diagnosis for President Trump, the first lady, and numerous members of the president’s inner circle of advisers and staff sparked an initial selloff in markets.

The drama didn’t last long though; markets soon calmed and much of the damage was recouped by the end of the day, especially in stocks leveraged to an economic recovery. This rapid soothing likely happened in response to the realization that testing positive was not only a reasonable possibility, given the situation, but also reports from the president’s medical team that he was recovering well and his subsequent discharge from Walter Reed National Military Medical Center.

Any deterioration in the president’s condition over the next few weeks would likely destabilize the markets further, but absent any development on this front it is likely the immediate reaction to the announcement has already plateaued. That said, investors are still concerned about what it could mean not only for markets but also for presidential governance and the upcoming election.

While Trump’s diagnosis appeared initially to be quite worrisome given his higher risk factors of age and weight, investors should remain calm. Other world leaders as well as state and local officials have contracted COVID-19 and remained able to effectively carry out their duties. That is likely to be the case here, too, as Trump’s doctors have described him as being in good health before his diagnosis.

If the president weathers the illness relatively smoothly and continues to govern without major problems, any effect of his illness on markets will likely be temporary. Note also that Boris Johnson’s approval rating spiked following his diagnosis with the same disease, although Johnson’s condition was apparently far more problematic than the scenario that is being reported regarding the U.S. president.

Following similar shocks during prior presidencies, constant contact and updates were critical in projecting confidence and reassuring Americans that the president was still able to execute the duties of his office. While he has returned to the White House, if Trump disappears from the public view at any point, his absence could raise questions about the severity of his condition and effectively lower the nation’s confidence.

If Trump is unable to carry out his presidential duties, the vice president will serve as “acting president” until the president is able to resume his full responsibilities once again. This scenario has happened more than once in the recent past. George H.W. Bush was acting president for eight hours in 1985 when Ronald Reagan was under sedation for surgery. Dick Cheney assumed the same role for two hours on two separate occasions (in 2002 and 2007), while George W. Bush was sedated for colonoscopies.

We do not currently anticipate any changes to the election schedule in terms of debates and events. It is unclear if Trump will hold any rallies, and if the next debate, scheduled for October 15 in Miami, will be held as a virtual event. As his recovery progresses, we will know more about what changes to dates and events will need to occur, if any.

Admittedly, the current scenario holds plenty of unknowns, and the market, as a rule, prefers to know what to expect. That, however, is far too much to ask in the month before a presidential election—much less during one that occurs in the midst of a pandemic with global economic ramifications. We remind investors that the soundest course at such a time is to ignore the headlines as they flash by and look instead at the price action they inspire in the markets. While headlines from now until the election are likely to be volatile indeed, they may not hold great significance in terms of their impact on the markets.

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