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MARK HULBERT

President Trump has tested positive for the coronavirus, and it raises far more questions than it answers.

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Here’s what we know, and don’t know, as represented by the instant commentary provided by the investment newsletters I monitor and the immediate reactions of bettors at electronic betting markets.

Read: Trump tests positive for coronavirus — why he’s at higher risk of more severe illness from COVID-19

Impact on who wins the election

Perhaps the biggest uncertainty that Trump’s positive test raises is: Who will win the presidential election, which is now just one month away? The judgment of the electronic betting markets, for what it’s worth, is that Trump’s odds of winning re-election are now modestly lower. Trump’s probability of winning fell between three and four percentage points on the news of his positive test, according to trading at Predictit.org (as you can see from the accompanying chart).

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Comments from some of the newsletters I follow provide a rationale for this dip. Investing.com’s Geoffrey Smith writes that Trump’s positive Covid-19 test “can only hurt his chances further. The question is then whether poor health either forces Trump to withdraw, or whether it could serve as a pretext for him to withdraw and return to a highly profitable life of sniping from the political sidelines without having to suffer the stigma of defeat.”

Mike Paulenoff of MPTrader adds that Trump’s “predicament certainly does not help his reelection chances.”

As you can see from the chart, however, there has not been a corresponding jump in Joe Biden’s odds of winning. That’s because almost all of the decrease in Trump’s odds went to an increase in the odds that Mike Pence would be the next president. (The Pence contract is not plotted in the accompanying chart.) Since Pence presumably would largely pursue the same economic policies as Trump would have in a second term, the net effect of the news on corporate profitability is limited.

Why has the stock market plunged?

If so, the natural follow-up question is: Why has the stock market plunged? I asked that of Eric Zitzewitz, an economics professor at Dartmouth College, who two decades ago pioneered the use of electronic betting markets to gain insight into the markets’ behavior. In an email Zitzewitz speculated that the stock market drop probably reflects “some combination of: a) the market updating on how severe the pandemic is, b) the market expecting people to update on how severe the pandemic is (and hunker down and not spend money), and c) the market expecting policy to shift toward limiting economic activity.”

Add to these factors the stock market’s intense distaste for uncertainty. As Investing.com’s Smith puts it, the market’s plunge “looks like a textbook case of markets adding a blanket uncertainty premium to more or less everything.”

Don’t exaggerate the impact

A final word of caution: Momentous as Friday’s Trump news seems, we shouldn’t exaggerate its impact. Many of the investment newsletters I monitor feel as though the news doesn’t merit more than a one-sentence mention in their Friday morning communications to clients. That’s significant.

As Mark Hamrick, senior economic analyst at Bankrate.com, is reminding investors: “Longer-term and outside the news cycle, the typical drivers will remain most relevant, including earnings, dividends and interest rates. As is always the case, long-term investors need to try to look through the near-term fog.”

Mark Hulbert is a contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com.

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