Key takeaways
- Late last night, President Donald Trump and First Lady Melania Trump tested positive for COVID-19. The president is exhibiting cold-like symptoms and continues to carry out the presidential office’s functions.
- The president’s positive test adds additional uncertainty to the national elections scheduled for Tuesday, November 3rd. Betting market odds for a Biden presidential victory and Democrat Senate takeover improved after the news.
- Constitutional mechanisms are in place in the event the president is unable to carry out the office’s duties; however, other world leaders have successfully managed after contracting COVID-19.
- We retain our glass half-full outlook but respect the continued market volatility given news and events regarding enhanced election uncertainty, stalled fiscal stimulus negotiations and back-to-school/virus dynamics.
Amid an already hectic fall news cycle, late last night the White House reported President Donald Trump and First Lady Melania Trump tested positive for COVID-19 and will immediately begin the quarantining process. At this publication’s press time, the President has reportedly exhibited mild cold-like symptoms. Unsurprisingly, investors reacted to the breaking news by initially seeking less risky investments, with European equities trading modestly lower and U.S. equity futures pointing to a lower opening as well while Treasury prices rose (meaning yields fell) and the dollar advanced against major currencies. As investors began digesting the news, U.S. equity markets opened lower this morning but are trading above the day’s lows.
While events will continue to evolve over the coming days and weeks, the President’s positive test introduces additional uncertainty into a national election just 32 days away. This diagnosis’ timing calls into question whether the next Presidential debate, scheduled for October 15th in Miami, Florida will occur and will depend on the President’s condition over the coming weeks. Meanwhile, prediction market odds for both a Biden Presidential victory and a Democratic Party Senate takeover increased markedly overnight. With the House overwhelmingly expected to remain in Democrats’ control, prediction markets are placing higher odds for a Democratic sweep scenario. Regarding the various election day scenarios, we would refer you to our recent paper, “The 2020 election: Predictions, implications, and outlook” for our election thoughts and investment considerations. As we highlighted in that piece, the current environment is subject to considerable news flow, and today’s developments reflect yet another twist in a year replete with gyrations.
Regarding the governing process, if the President is no longer able to carry out the office’s duties, the 25th Amendment allows the President to notify Congress with the Vice President taking over as acting President. If the President is unable to notify Congress due to worsening conditions, the Vice President and a cabinet majority may inform Congress that the Vice President is taking over as acting President until the President’s condition improves. At that time, the recovered President would notify Congress that they are resuming their office’s duties.
News flow and events will undoubtedly remain fluid over the coming days and weeks leading up to election day on November 3rd. President Trump’s positive COVID test does not necessarily foreshadow the succession scenarios discussed above. Other world political leaders have successfully carried out their office’s duties after contracting COVID-19. As of this writing, the Vice President debate between Vice President Mike Pence and Senator Kamala Harris is scheduled for next Tuesday, October 7th, though we would not be surprised if the format is moved to a virtual debate.
Today’s labor market data, somewhat lost amid today’s breaking news, is an important reminder that the economy remains an important consideration for capital market investors. Private companies added 877,000 jobs in September, exceeding the average economist’s expectations, while the unemployment rate fell more than expected from 8.4 percent to 7.9 percent. The labor market reflects the ongoing gradual economic recovery, improving from the March and April lows, but not yet back to full recovery. More than 12.5 million Americans remain unemployed, and the number of long-term unemployed, those who are seeking work but have been unemployed for more than 27 weeks (roughly the duration of COVID-19), rose to 2.4 million, a 5-year high.
To support the ongoing economic recovery as we await a virus vaccine, the Federal Reserve has committed to an accommodative monetary policy for the foreseeable future, which includes low interest rates, purchases of government, corporate and municipal securities, and direct support to small businesses. Meanwhile, House Democrats and Senate Republicans remain at odds over extending enhanced unemployment benefits that expired on July 31st, fiscal support that we view as also key to bridging the economy. It remains unclear whether the President’s positive COVID test increases or lessens the chances that a consensus stimulus package will be reached in the coming days or weeks.
While we respect the enhanced uncertainty surrounding November’s elections, the challenges facing the economy and the elevated market volatility that ongoing news flow and events will bring, we also continue to respect the investment opportunities that volatility may present. Patient investors have weathered an innumerate number of “bricks” in the wall of worry over the months, years and decades, including 2000’s contested election. While we remain vigilant for potentially negative outcomes, we retain a glass half-full perspective and place a slightly greater weight on Federal Reserve support and an ultimate breakthrough in a virus vaccine. For additional commentary regarding our investment views please refer to our 4th quarter investment outlook. We will assuredly update you with any changes to our views and our insights into major events. We thank you for your trust, and please don’t hesitate to reach out to your advisor for any questions or concerns you may have.
This information represents the opinion of U.S. Bank Wealth Management. The views are subject to change at any time based on market or other conditions and are current as of the date indicated on the materials. This is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific advice or to be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation. The factual information provided has been obtained from sources believed to be reliable, but is not guaranteed as to accuracy or completeness. U.S. Bank is not affiliated or associated with any organizations mentioned.
Based on our strategic approach to creating diversified portfolios, guidelines are in place concerning the construction of portfolios and how investments should be allocated to specific asset classes based on client goals, objectives and tolerance for risk. Not all recommended asset classes will be suitable for every portfolio. Diversification and asset allocation do not guarantee returns or protect against losses.
Past performance is no guarantee of future results. All performance data, while obtained from sources deemed to be reliable, are not guaranteed for accuracy. Indexes shown are unmanaged and are not available for direct investment. The S&P 500 Index consists of 500 widely traded stocks that are considered to represent the performance of the U.S. stock market in general.
Equity securities are subject to stock market fluctuations that occur in response to economic and business developments. International investing involves special risks, including foreign taxation, currency risks, risks associated with possible differences in financial standards and other risks associated with future political and economic developments. Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility. Investing in fixed income securities are subject to various risks, including changes in interest rates, credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. Investment in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. Investments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities. Investments in high yield bonds offer the potential for high current income and attractive total return, but involve certain risks. Changes in economic conditions or other circumstances may adversely affect a bond issuer's ability to make principal and interest payments. The municipal bond market is volatile and can be significantly affected by adverse tax, legislative or political changes and the financial condition of the issues of municipal securities. Interest rate increases can cause the price of a bond to decrease. Income on municipal bonds is free from federal taxes, but may be subject to the federal alternative minimum tax (AMT), state and local taxes. There are special risks associated with investments in real assets such as commodities and real estate securities. For commodities, risks may include market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors. Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates and risks related to renting properties (such as rental defaults).
Deposit products are offered by