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Markets regain momentum as focus turns from Trump's diagnosis to hopes for stimulus deal

“There remains a very real possibility that the market’s gains over the previous two quarters will steadily erode in the months ahead as we close out a year that many would like to forget,” said one economist.
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Wall Street recovered Friday afternoon, as investors shook off concerns about President Donald Trump’s announcement that he had tested positive for the coronavirus, and focused on hopes that the next round of coronavirus aid would pass.

“This kind of changes the dynamic,” House Speaker Nancy Pelosi told MSNBC on Friday about the president's diagnosis. “Here, they see the reality of what we have been saying all along.”

“We’ll find our middle ground. We’re legislators. We’ll get the job done,” Pelosi said.

Pelosi and other Democrats have been at loggerheads with Republicans over the extent to which the coronavirus threatens the economy, with Senate Republicans continuing to push for an expanded reopening and downplaying public safety measures.

Markets also received a boost Friday after Pelosi said relief for the airline industry is “imminent,” pushing up shares for all major carriers. Earlier in the day, shares of Southwest Airlines, United Airlines, American Airlines and Delta Air Lines were down by around 3 percent as fears grew that the travel sector would take a sustained hit if economic recovery failed to materialize with any swiftness.

At the opening bell, the Dow Jones Industrial Average fell by almost 400 points, the S&P 500 dropped nearly 1.5 percent, and the tech-heavy Nasdaq composite index fell by over 2.2 percent. All three indices have since pared most of those losses.

"The current development across various scenarios for the president’s illness slightly increases [former Vice President Joe] Biden’s chance of winning, which could marginally reduce post-election risks and market uncertainty," analysts for JPMorgan wrote in a note Friday.

Nonetheless, the president's news was "a shock to investors," said Peter Essele, Head of Portfolio Management for Commonwealth Financial Network, in an email.

“It seems reasonable to assume that markets will be on shaky ground throughout October with the perfect storm of a highly contentious election and a pandemic that remains stubbornly at the forefront,” he said. “There remains a very real possibility that the market’s gains over the previous two quarters will steadily erode in the months ahead as we close out a year that many would like to forget.”

Analysts said there could still be surprises in the market reaction as the president’s diagnosis could spur legislative action to tackle the coronavirus and economic crisis with a fresh round of support.

"Initial market reactions to the news that President Trump tested positive for Covid-19 are as expected — negative,” wrote Jamie Cox, Managing Partner for Harris Financial Group, in an email.

“However, markets could have some unexpected reactions as this could break the log jam in current stimulus negotiations,” Cox wrote.

Friday also saw the release of a crucial monthly jobs report, the last snapshot of the economy before Election Day. Data from the Bureau of Labor Statistics showed that just 661,000 jobs were added during the month of September.

Of the 22 million jobs initially lost in the first months of the pandemic, only 11.4 million have been recovered so far.

“The market move is less about the election and more about the possibility that the U.S. president might become incapacitated,” David Stubbs, head of markets strategy at JPMorgan International Private Bank told Bloomberg. “This would inject significant uncertainty into the policy and geopolitical outlook. That is clearly a risk-off event and markets are acting as such.”