President Donald Trump's health was front and center on Friday after it was revealed just after midnight that he had tested positive for COVID-19. As a precaution, he was taken to Walter Reed Hospital later that day.
The news caught investors flat-footed, sending the stock market lower by as much as 2% in Friday trades.
This isn't the first time the health of the US President has rattled the stock market, and it certainly won't be the last.
And while it's anyone's guess where the market will go from here, investors can look back on history to help set expectations for a potential path forward, because the human emotion that drove the market lower on Friday is no different from the one that rattled investors decades ago: fear.
The Eisenhower Heart Attack
On Saturday, September 24, 1955 President Eisenhower suffered a massive heart attack while playing golf in Denver, Colorado. An initial misdiagnosis by his doctor ultimately led to a 6 week hospital stay.
News of Eisenhower's health setback hit the airwaves that Sunday, as Eisenhower was the first President of the United States to set the precedent of being transparent with his health and medical history.
Eisenhower's heart attack led to a swift sell-off of 7% in the stock market that Monday, in what was the worst single day for stocks since the start of World War II.
The sell-off in stocks would continue into October, with a total peak to trough decline of 11%. From there, the market went on to to recover all of its losses by early November and hit new highs just a few months later.
The Assassination of JFK
On Friday, November 22, 1963 President John F Kennedy was assassinated in Dallas, Texas. Once news reached investors, the stock market remained open for 30 minutes before closing early.
In those 30 minutes, frantic selling caused stocks to fall 3% in one of the most active trading days in history at the time.
The stock market reopened on Tuesday, and quickly rebounded, jumping 4% and returning nearly 8% over the following two weeks.
Despite the tragic news, a smooth transition of power to Vice President Lyndon B. Johnson helped calm down investors.
The Attempted Assassination of Ronald Reagan
On Monday, March 30, 1981, President Ronald Reagan was shot in the chest in an assassination attempt in Washington, D.C.
News of the shooting slowly made its way to Wall Street, with first reports hitting the wire that shots were fired near the President and a White House staffer was hit. The markets barely budged until a news update revealed 30 minutes later that Reagan had indeed been shot.
Stocks, which were up throughout the day, reversed and sold off 1%. The market closed 45 minutes early that day. Markets recovered from the sell-off on Tuesday and continued to trend higher in the following weeks.
Reagan was released from the hospital less than two weeks after the shooting.
A decline in the health of the President has always been met with selling by investors in the short-term, but those losses tended to dissipate quickly.
The question investors should ask is: how does this news impact the long-term outlook for the businesses I am invested in? Little to no impact has always been the answer, and will likely be the answer this time around as well.
That's not to say the stock market will recover from Friday's swift decline tomorrow, next week, or next month. How quickly it takes Trump to recover from COVID-19 will likely dictate how long it takes the market to recover from Friday's sell-off, as was the case with Eisenhower's heart attack.
And on top of that, the upcoming November election adds a certain flavor of uncertainty to the mix that could be another source of volatility for stocks, making it more difficult for the market to stage a speedy recovery.
But the silver lining of President Trump's COVID-19 diagnosis could be two-fold:
1. A wake up call to the portion of the country that is not taking this virus seriously, which could lead to increased compliance of CDC guidelines (wear a mask and social distance), which would lead to a quicker and safer reopening of the economy.
2. Increased chances that an additional round of fiscal stimulus will pass Congress before the election.
Following Trump's diagnosis, House Speaker Nancy Pelosi signaled that a deal "will" be done, which would at the bare minimum include aide to the airline industry and another round of direct payments to Americans, according to recent comments from both Pelosi and Treasury Secretary Steve Mnuchin.
President Trump tweeted on Saturday, "OUR GREAT USA WANTS & NEEDS STIMULUS. WORK TOGETHER AND GET IT DONE."
Chart of the Week
The most important lesson in Economics 101 can be derived from this chart: supply and demand. Assuming no change in supply, a drop in demand directly correlates with a drop in prices, and vice versa.
The COVID-19 pandemic has resulted in a boom in certain industries, and a bust in others. A boom in residential real estate, and a bust in commercial real estate. A boom in video games, a bust in movie theaters. A boom in bicycles, a bust in shoes.
The list goes on, and the lopsided economic impact of the COVID-19 pandemic illustrates why it's so important for investors to maintain a well diversified portfolio of high quality businesses that will survive, if not thrive, during the pandemic.
At Ithaca Wealth Management, we build customized investment portfolios to help you compound your wealth. Reach out today to learn more, or visit www.ithacawealth.com
Your Investments in the News
- Nvidia announced the $40 billion acquisition of Arm Holdings, a developer of semiconductors that are commonly found in personal smart phones. The acquisition will immediately be accretive to Nvidia's profits, according to the company.
- Walmart's Walmart+ service has been a hit with consumers, with recent estimates suggesting that 11% of the US population has already signed up for the recently launched $98/year service subscription. Walmart has the scale to pull off such a quick adoption rate of a new product: 160 million people walk through its doors at least once a week.
- Merck announced a slew of positive data updates for its cancer therapy Keytruda. The drug was found to improve survival rates in esophageal, breast, skin, ovarian, brain, and colorectal cancers.
- PepsiCo, Adobe, and Costco reported Q2 revenue and profits that beat analyst expectations.
- Accenture, Starbucks, and Microsoft increased their quarterly dividend payments by 10%.
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