The shocking news that President Trump and the First Lady have tested positive for Covid-19 is causing great confusion for the stock market this morning. Early indications are the S&P 500 will open about 2% lower. The old saying that the market hates uncertainty is in play.
Our job at this point is to understand the news, sort out the emotional reactions, and develop a strategy for dealing with it. We can't be cavalier about the suffering this may cause but we still are obligated to do our jobs as best we can.
The first question that arises is how many other people in the White House might be infected. The greater the spread then the greater the market concern as it makes the situation even more uncertain.
The second question is what is the severity of the infection the President is suffering? He is at high risk due to his age and weight, although he obviously will see immediate and aggressive treatment so that likely ameliorates some of the risks.
The next set of questions relate to the election. Does this hurt Trump's chances of being reelected? Probably what is more important right now to the market is whether this changes the risk of a contested and uncertain election. If it becomes clearer that Biden may win that will eliminate some short-term market negatives although it creates a host of future issues that we will eventually have to deal with.
Another consequence of this news is that it is likely to impact economic confidence of many people when they hear that even the President of the United States can catch Covid. How can we aggressively move forward and reopen the economy if this virus can hit those that appeared to be safe from it?
The effect on economic confidence is the biggest risk factor at this point. There has been increased confidence that the economy is on track to reopen even as the number of Covid cases has increased, mainly because hospitalizations and deaths have declined. States such as Florida are already fully opened but this news will likely impact consumer behavior to some degree.
The good news is that much of the market is not grossly extended either technically or fundamentally. The FATMAAN stocks are most vulnerable, however, they are also "safe haven" stocks and have benefited most when worries about Covid are high.
Another positive factor is that dip buyers have been consistently rewarded when they buy weakness. There will be plenty of bargain hunters looking to buy favorite names. I already have several on my radar.
While this news is quite shocking it is unlikely to create market panic as the situation is assessed. To the extent it clarifies the election results it may actually be a positive. As the action develops we will see how correlated the selling is. Eventually, correlated selloffs always lead to great stock-picking as "good" stocks are unfairly punished.
I do not plan on doing any significant selling into the open at this time. We'll see how things develop during the course of the day but I believe as the shock of the news is digested the market will stabilize quickly.