“This is a head-spinning new development in a head-spinning year,” Ed Yardeni, president of investment advisory Yardeni Research, wrote in a report to clients Monday.
Initially, word of Trump and First Lady Melania Trump’s positive Covid-19 tests shocked investors, sending US stock futures plunging early Friday. But the Dow finished down just 0.5%, or nearly 135 points, Friday as the White House claimed Trump had just a mild case. The S&P 500 lost 1%.
After US markets closed Friday, it became clear the situation was more serious. Marine One landed at the White House to medevac Trump to Walter Reed.
“I feel better than I did 20 years ago!” he tweeted.
Some market analysts expressed frustration with the lack of transparency into the president’s health.
“It’s hard to understand what the president’s current condition is because there’s been so much contradictory reporting,” Bespoke Investment Group wrote in a note to clients Monday, “but we can say confidently that his doctors are not holding anything back when it comes to treatment and it would appear this his condition is improving.”
How prior health scares have impacted stocks
History shows that markets tend to swiftly rebound from presidential health shocks.
Since 1919, the Dow has almost always recovered within four days from medical surprises, according to CFRA Research. That includes April 1919, when the Dow dropped 1.5% after President Woodrow Wilson was infected with the Spanish Flu. Likewise, the Dow recovered four days after the 1963 assassination of President John F. Kennedy, a national tragedy that initially caused the market to slide 2.9%.
“The stock market is a barometer of economics, not politics,” Sam Stovall, chief investment strategist at CFRA Research, wrote in a note to clients Monday. “History suggests that the equity markets will not experience a long-lasting fallout from the president’s testing positive to the Covid-19 virus.”
Trump’s diagnosis is the most serious health threat to a sitting president since President Ronald Reagan was shot in 1981. The Dow fell 0.3% after the shooting, but recovered in just one day, according to CFRA.
However, the market has sometimes taken longer to recover.
In 1955, the Dow dropped 10% after President Dwight Eisenhower suffered a heart attack. It didn’t recoup those losses for 75 days, CFRA said. And in 1956, the Dow lost 6.5% after Eisenhower was diagnosed with Crohn’s Disease and didn’t recover for 56 days.
Fragile confidence at stake
One risk today is that Trump’s battle with Covid-19 spooks American consumers, the main driver of the US economy. The president’s infection shows that even the most protected person on the planet is vulnerable to the deadly virus.
“President Trump’s illness and the unprecedented political rancor over the election may be too much for people to bear,” Mark Zandi, chief economist at Moody’s Analytics, wrote in a report Sunday. “If as a result they lose confidence in the recovery and pull back on their spending, investment and hiring, then the recovery will unravel.”
But the opposite could be true as well. If Trump is able to quickly return to the White House and fully recover from Covid-19, it could deliver renewed confidence to nervous Americans.
The outbreak in the White House could speed up deadlocked talks on providing more stimulus to an economy screaming out for it. In one of his first tweets since being hospitalized, Trump pressed lawmakers to make a deal.
“We continue to believe time — and politics — will prevent a deal before Nov. 3,” Chris Krueger, policy analyst at Cowen Washington Research Group, wrote in Monday note to clients. “Given policy volatility, [it’s] very hard to have any conviction right now.”
The election is less than a month away
It’s likewise difficult to say with certainty what Trump’s health scare means for the race for the White House.
Ultimately, the bigger impact for the market will be how the election impacts the recovery from the coronavirus recession.
“For now, we believe that the economy will continue to recovery through the end of this year and into next year,” Yardeni wrote, “no matter who wins.”