Markets were already bracing for a wild October. Now Trump is sick

If it is going to happen, it will happen in the next four weeks. At the start of every October, investors and traders can be forgiven for already feeling a little uneasy. Traditionally, it is the month for a stockmarket collapse. With valuations already sky-high, a contested election looming, key vaccine data on a knife-edge, and with the virus resurgent around the world, there were already plenty of reasons to feel nervous. Now, with President Trump testing positive for COVID-19, it promises to be a wild ride.

In truth, however, Trump’s positive test won’t be the trigger for a full-scale collapse. If he suffers mild symptoms, it won’t make much difference either way. If he goes into intensive care, then either the more moderate vice-president Mike Pence steps in, or else Joe Biden wins, with an expansionary fiscal programme, while the civil unrest a Trump second term might spark will be avoided.

Trump's COVID-19 diagnosis gives markets another reason to be nervous this October.
Trump’s COVID-19 diagnosis gives markets another reason to be nervous this October.Credit:Twitter

Either way, the markets and the economy won’t move dramatically in either direction. There was a strong rally in equities after Trump was elected, but neither his illness, nor his re-election or defeat, will have anything like the same impact.

It might be the autumnal weather, the approach of the year-end, or else a sheer coincidence but October has always been the month of maximum risk for investors. In stock market terminology, the phenomenon even has its own name, the “October effect”, referring to the fact that the 10th month of the year typically witnesses a worse performance than any other (although September is bad as well).


It has certainly been the month for the really big crashes: the bank panic of 1907, the crash of 1929, and Black Monday of 1987, all took place in October. A diagnosis of the president of the United States with a potentially fatal virus – and one that especially hits overweight men in their 70s – on the second day of the month will have plenty of investors looking nervously at the history books and wondering if October 2020 is about to join that infamous list.

Even before that news of the diagnosis broke, there was no shortage of reasons to feel uneasy. If you are looking for triggers for a crash, it is hard to know where to even start. The markets have been on an extraordinary bull run after the March correction, and valuations already looked over-stretched, especially of the big technology companies.

It has certainly been the month for the really big crashes: the bank panic of 1907, the crash of 1929, and Black Monday of 1987, all took place in October.

COVID-19 is resurgent around the world, with much of Europe going into semi-lockdown to try to keep infections under control: anyone who thought this was going to be over quickly, and the economy would quickly bounce back, will have to reassess their forecasts. Key vaccine data is due this month from companies with potential shots such as Pfizer and Moderna, and if those disappoint, or the rollout of a shot is delayed, that will come as a huge blow. Most of all, the presidential election is looming, with the prospect of a contested result and perhaps weeks of legal argument before a result is declared (and even then Trump might refuse to accept it). If you are looking for a reason to sell, you can take your pick.

Against that backdrop, Trump’s positive test for COVID-19 could hardly have come at a worse time. Stock markets around the world sold off as the news broke, and we can expect that to last well into next week.

Traders will be anxiously watching the medical updates from the White House. Typically, COVID-19 starts in a mild form, and then the complications start to emerge. When Boris Johnson caught the virus, he isolated for a few days, then went to hospital and then into intensive care. If Trump follows the same path, there will certainly be a reaction. The American government will be paralysed at the worst possible moment. Decisions on controlling the virus, and licensing a vaccine, will be postponed, while nothing will be done to rescue the economy. There is never a good time to have a sick, or even dying, president. But this is an especially bad one.

October has traditionally been a wiold month for markets.
October has traditionally been a wiold month for markets.Credit:AP

And yet, the important point is surely this. Trump’s diagnosis won’t necessarily be the trigger for a full-scale crash. In truth, it might not change that much, and certainly not for the worse. If he is fine, then nothing much changes.

If the president is very sick over the next couple of weeks, what happens? Pence steps in to run the administration and, in the worse case, takes over as the Republican candidate in November. Pence is a more moderate, sensible politician, and could hardly be any more chaotic than his boss. Alternatively, it makes a victory for his Democratic challenger Biden more likely. But the markets are hardly likely to be rattled by a change of regime at the White House. Biden is a moderate liberal Democrat who worked alongside Obama for eight years. His platform promises an expansion of spending, and that will be good for the economy, and certainly the stock market. His election is likely to be mildly positive for equities.

When Trump won the election in 2016, there was a significant rally on the stockmarket. It came to be known as the “Trump bump” (and typically he boasted about it non-stop).

His tax cuts, especially for corporations, a wave of deregulation and a huge fiscal stimulus lifted the US growth rate, and that was rightly reflected in the equity markets. His re-election, if that is what happens, was never likely to have the same impact. Whatever their views of his rhetoric and record, everyone will wish Trump a speedy recovery.

There will be some days of wild trading on the markets as details emerge of how his immune system is responding to the virus. In reality, however, it shouldn’t make much difference. October is always a volatile month, but Trump’s diagnosis shouldn’t trigger a full-scale collapse.

Telegraph, London

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