TRUMP COVID: MKTS, POLITICS INITIALLY STEADY, BUT SMALL MKT NEG - AND STIMULUS ONLY 40%

We publish here our full note from Friday morning Oct 2, a nonconsensus view: 

• President Trump testing positive for Covid is on net an incremental market negative thanks to the increased markets and political uncertainty it brings.  
• But Trump/Covid is unlikely to become a major change event for markets or politics unless Trump truly becomes ill, impaired, or worse.  Today that is a low percentage shot even for someone in a higher risk category, as he is.  
• And, there’s much less impact on the elections than now thought, and no impact on SCOTUS (70% likely before election) or stimulus, which remains unlikely at 40%.  More about that below. 

Markets made what we think is an initial sensible reaction.  Asia markets ended mixed; US market futures steadied Friday morning after a significant initial drop; and US markets started just over 1% down and then trended up, balancing the Trump and jobs news (+661K, unemployment 7.9%). 

Politically, the news is yet another wild card, but today we think is not one that alone is not likely to have much initial impact on the race unless Trump becomes ill, impaired, or worse.  Two reasons:

First, the vast majority of voters already have made up their minds for Trump or Biden - 90% or over, by most calculations.  

• Already committed voters we think are very unlikely to change their votes or be less for Trump based only on a Trump infection report.  Things might change for committed voters if Trump becomes sick or significantly impaired, but we think not by much. 
• Noncommitted voters - around 10% of likely voters (enough to swing the election, but less than most races at this point) probably keep their powder dry today.  Our instinct is that only if Trump gets sick, impaired, or worse might this change. 
• And, undecideds could swing one way and back again, or splinter differently, depending upon Trump’s condition and other unrelated factors.  
• Right now, the campaign will continue full speed, virtually if even less physically.
• The next POTUS debate still could go forward, either in person or virtually.  
• Trump will do everything possible to project command and continued vigorousness. Paradoxically, markets have more to worry about today if Trump’s usual way of doing business changes: a quiet Trump isn’t the markets’ friend, because that would create more market uncertainty.  

Second, Republicans and Democrats view Covid very differently, which is likely to play a large role in how today's news shakes out in the elections. Pew studies concluded "Republicans and Democrats remain far apart in their views of the threat to public health posed by the coronavirus outbreak. More than eight-in-ten Democrats and those who lean toward the Democratic Party (85%) say the coronavirus is a major threat to the health of the U.S. population. Republicans and Republican leaners see the disease in less serious terms: About as many Republicans say the coronavirus is a major threat to public health (46%) as say it is a minor threat (45%).” Pew’s July findings here were consistent with their May studies, but more partisan than March. 

Finally, there’s no impact from Trump/Covid on other major Washington events markets care about.

• The campaign continues virtually, but less physically; 
• The Barrett SCOTUS nomination process continues unimpaired and 70% on track for pre-election success;
• There’s no impact on stimulus negotiations, which we remain bearish on at 40% likely before the election - up from our earlier 10% only due to potential political stupidity.  As we’ve said before, there’s no reason for already divided Republicans to bail out Pelosi on stimulus - she’s only projecting compromise because her ~30 centrists from Trump-won districts are in danger of losing seats and perhaps Pelosi’s majority and Speakership. The politics say don’t give it to her if Rs can win the House, unless she caves completely and comes down to the $1.5T that we have long thought is the vector between what’s needed politically and economically.