Paul O’Connor, Head of the UK-based Multi-Asset Team, comments on the latest market movements as news of President Trump’s COVID-19 diagnosis adds to the chances of a Democratic clean sweep in the US election.

Key takeaways:

  • While some commentators view positive market movements as increased optimism for the President’s recovery from COVID-19, we believe that it is more likely due to markets pricing in a Democratic clean sweep.
  • Expectations for control over the Senate have been volatile, swinging from a 50-50 tussle to predictions of a Democratic success. Meanwhile, betting markets suggest the House of Representatives will remain in the hands of the Democrats.
  • Although questions remain over the health of the President, it is unlikely that the November election will be delayed.


While the news that President Donald Trump has contracted COVID-19 has added further confusion to the US election race, financial markets, polls and betting odds continue to shift towards a Democrat clean sweep in November. There are still questions to be answered about what happens if the president’s health deteriorates further but, for now, markets are more focused on the outlook for fiscal stimulus, before and after election day.

Naturally, the initial response of financial markets to Friday’s (2 October) announcement on the president’s positive test was to reduce risk assets, but sentiment recovered later in the US trading session and the positive tone has continued into Asian and European trading today (5 October). While, some commentators are interpreting the recovery in investor sentiment as reflecting increased optimism on the president’s health, we think it is more about investors increasingly pricing in a Democrat clean sweep in November’s election. Although it was only a one-day move, Friday’s sharp US equity market rotation from growth into value bore all the hallmarks of the ‘blue wave’ (Democrats’ victory) trade.

Both the polls and the betting markets continue to point towards a broad electoral victory for the Democrats. Before last week’s television presidential debate, Trump was trailing Democrat Joe Biden by 7-8 points in the polls and was behind in most of the key swing states. In three national polls taken since the TV debate, Biden leads 14%, 10% and 7%. The fact that Trump’s illness will probably take him off the campaign trail for a couple of weeks does not augur well for his team’s chances of reviving his electoral support.

Betting markets continue to point to an 80-90% probability that the Democrats will retain control of the House of Representatives. Expectations for the Senate have been more volatile. The notable action here has been the swing from this being seen as a 50-50 tussle, just a month ago, to today’s implied probabilities of 2/3 vs 1/3 in favour of the Democrats. If polls and the betting markets are taken at face value, Biden will be leading his party to a clean sweep in November.

Another potential interpretation for today’s recovery in risk assets is that investors believe that the president’s illness will improve the likelihood of a compromise being reached on the contentious US fiscal stimulus package. Some might take encouragement from Trump’s weekend tweet urging negotiators to “work together” on this. However, the big divide here is not between the Democrats and the president, but between the Democrats and congressional Republicans. A decisive breakthrough before the November election would be a surprise to us and a positive surprise for investor risk sentiment.

The president’s illness has unsurprisingly brought some focus onto questions regarding potential scenarios should his health deteriorate further. Given that COVID-19 is a two-phase infection for many patients, often worsening in the second week, these questions will persist until Trump is clearly on a recovery path. In broad terms, the US Constitution would specify that the presidential authority should be transferred to the vice president if the president was incapable of performing his official duties. If the president was so ill that he had to withdraw from the election, then a delayed election is possible but by no means inevitable. No presidential election has ever been delayed – not even during the world wars. If polling day was delayed, the new election would have to occur before 20 January, the day when Donald Trump’s term in office is scheduled to end.


Risk assets: Financial securities that can have significant price movements (hence carry a greater degree of risk), including equities, commodities, property and bonds.

Fiscal stimulus: Fiscal government policy relates to setting tax rates and spending levels. Fiscal stimulus (or expansion) refers to an increase in government spending and/or a reduction in taxes.