JPMorgan’s quant guru details 2 ways Trump’s COVID-19 diagnosis can lift markets

Marko Kolanovic Top 100
  • President Trump’s contraction of COVID-19 could improve the stock market’s outlook in two ways, Marko Kolanovic, head of quantitative and derivatives strategy at JPMorgan, said Friday.
  • In one hypothetical posed by the bank, a mix of voter sympathy, increased turnout, and mild coronavirus symptoms could lift Trump’s odds of winning a second term.
  • A Trump victory would vindicate the president’s efforts to rapidly reopen the national economy, Kolanovic said.
  • A more serious infection could lower tensions between Democrats and Republicans and boost Republicans’ odds of winning congressional elections, the strategist added.
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President Trump’s positive coronavirus test jolted markets, but its lasting effects could aid bullish investors, according to JPMorgan.

The bank held its year-end S&P 500 target of 3,600 in a Friday note, adding the diagnosis only slightly increases Democratic presidential nominee Joe Biden’s chances of taking the White House in November. Biden already boasts a healthy lead in most polls, and an additional boost might aid markets by reducing election-related uncertainty, the team led by Marko Kolanovic, head of quantitative and derivatives strategy at JPMorgan, said in a note.

Two hypothetical outcomes for Trump’s infection stand to create an even more positive environment for stocks, the team added. A cocktail of voter sympathy, increased turnout, and a mild COVID-19 case could lift Trump’s election odds. The president would be able to boast that his reopening plans were correct and push forward with his economic recovery efforts, Kolanovic said.

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Such a scenario isn’t without precedent. UK Prime Minister Boris Johnson enjoyed an outpouring of public sympathy after contracting the virus in March. After a debate performance largely viewed as chaotic and detrimental to his election hopes, Trump could regain some favor among compassionate voters.

The bank’s second hypothetical hinges on a more dire outcome. Should Trump suffer significantly from the virus, the team sees the event easing tensions and building new partnerships between Democrats and Republicans. The president’s worsening condition could give way to “national reconciliation” and possibly raise the odds of Republicans running for Congress, the strategists added.

Either way, JPMorgan expects the market’s outlook to improve through the end of the year. Positioning in stocks relative to other assets remains low. The bank sees the probability of an early stimulus deal increasing, despite Senate Republicans balking at the $2.2 trillion measure passed by House Democrats on Thursday.

Third-quarter earnings and guidance should “remain constructive” as profits beat expectations and companies’ balance sheets strengthen, the team added.

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