A Wall Street chief strategist breaks down what Trump’s COVID-19 diagnosis means for markets

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  • Investors should stay the course even as President Trump’s contraction of COVID-19 boosts market volatility, Seema Shah, chief strategist at Principal Global Investors, said Friday.
  • US stock indexes initially tumbled on Friday in reaction to the news, but Trump testing positive does little to change the typical dynamic between markets and presidential elections.
  • “It’s probably better to look away from the screen for the next month or so” as volatility climbs ahead of Election Day, Shah said.
  • Had Biden and Trump been neck-and-neck in the polls, Trump testing positive may have moved markets more significantly. Instead, the only effect is a temporary bout of choppy trading, she added.
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President Donald Trump’s COVID-19 diagnosis will boost volatility but investors should refrain from knee-jerk portfolio changes, Seema Shah, chief strategist at Principal Global Investors, said.

US stock indexes sank when markets opened on Friday in reaction to the news and a worse-than-expected jobs report. Market volatility rocketed as much as 13% higher, and safe-haven assets saw slight gains.

The diagnosis adds fresh uncertainty to the final month of a presidential race already expected to fuel outsized volatility. Headlines on Trump’s condition will drive choppy trading in the coming weeks, but the market will likely course-correct after the election, Shah said.

“Volatility is up, but does that mean you need to change your allocations? Probably not. It’s probably better to look away from the screen for the next month or so,” she added. “Don’t change any of your allocations, because things will revert to normal after a couple of months.”

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If anything, precedent suggests Trump’s infection could bring the race closer. When UK Prime Minister Boris Johnson contracted the virus in late March, “it really increased public sympathy for him” and the same thing could happen for Trump, Shah said.

Still, Democratic presidential nominee Joe Biden holds a strong lead in most polls, and Trump’s diagnosis probably doesn’t change the election’s outlook, she added.

“This isn’t necessarily going to move the needle too much, but it does move the needle in terms of volatility,” Shah said. “If Biden and Trump been neck-and-neck in the polls, then yes, this would be a market-moving event because it could shift it one way or the other.”

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Stock investors seemed to arrive at the same realization through Friday’s session. Indexes pared losses, and an initial bump for safe-haven assets faded.

More broadly, October is shaping up to be a rough month for investors. The Bureau of Labor Statistics’ Friday report pointed to a continued slowing of the US economic recovery. Major banks recently revised their growth estimates lower, citing dwindling odds of a near-term stimulus deal.

History suggests markets will react more negatively as they approach Election Day. Conversely, investors who take defensive positions now could miss out on the typical rebound seen as election uncertainty dies down. Trump contracting the coronavirus is “short-term noise” that jolts asset prices, but “there is nothing … which should change the market dynamic” seen in past election cycles, the strategist said.

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