October Surprise: Market Reaction to Trump Illness Is Muted

Perhaps the small losses show investors think not much will change in the presidential race.


It’s the ultimate October surprise: The news that President Donald Trump has contracted COVID-19 has the potential to up-end the election. For now, though, the stock market’s reaction is hardly dire. While stocks are down, the drop isn’t a plunge.  

Perhaps this is the market’s way of saying: His illness is a concern, but this doesn’t upset conventional opinion that Trump will lose his re-election bid. The benchmark S&P 500, as of late morning was down 1%. Since Labor Day, the index has lost more than that on three daily closes.

Other indexes have reacted similarly. The biggest market impact has been on the Nasdaq Composite, which is off 1.9%.

Meanwhile, while stock market volatility spiked 10% after the market’s opening, it since has abated to a degree, dipping by a third from its high. This all came amid a disappointing jobs report this morning.

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This all could change for the worse, of course. Certainly, no one knows what developments have yet to unfold that could rattle everything more harshly. The president’s positive test came as daily case counts continue to climb in the US and have steadily held above 40,000 in recent weeks,

To the more pessimistic market observers, the extent of Trump’s illness is just yet another worrisome unknown, along with a sputtering economic recovery and a stubborn pandemic. As such, some Wall Street strategists are advising that investors move into safe territory.

They should “consider some type of portfolio protection,” said Peter Essele, head of portfolio management for Commonwealth Financial Network, “as 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.”

Although the White House said Trump’s symptoms are mild, the fear that the president’s illness is more serious has rippled through the investing world. “The market move is less about the election and more about the possibility that the US president might become incapacitated,” said David Stubbs, head of markets strategy at JPMorgan International Private Bank.

With roughly four weeks to go before the Nov. 3 election, Trump’s ability to campaign—he had canceled his appearances for now—could be a factor in both the race, and Wall Street’s reaction to it. Democratic nominee Joe Biden is ahead in the polls, but that still could change. “Trump could gain support from a quick recovery as UK Prime Minister Boris Johnson did during his battle with COVID-19,” said Jeff Buchbinder, equity strategist for LPL Financial.

For sure, the prospect is that previous certainties about investing and Washington dynamics will be altered. “Markets (being impersonal) will focus on whether this affects the election outcome or public health policy,” UBS economist Paul Donovan wrote in a note this morning. “The future presidential debates may not happen; these were not seen as especially significant. Those opposed to mask-wearing may revise their views, and the president’s experience may impact US public health policy.”

It’s hard to say what effect the Trump diagnosis will have on public policy, including on the stalled talks between Democrats and Republicans on Capitol Hill over a new aid package. “Markets could have some unexpected reactions as this, could break the log jam in current stimulus negotiations,” said Jamie Cox, managing partner for Harris Financial Group.

To date, more than 34 million people have contracted COVID-19 worldwide, with more than 1 million related deaths, according to data compiled by Johns Hopkins University.

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Texas Employees CIO Tom Tull to Retire

He built out alternatives at the $29 billion retirement system soon after joining. 

Tom Tull

Tom Tull, the investment chief at the Employees Retirement System of Texas (ERS), will retire next summer after leading the $29 billion pension fund for eight years. 

“It really has been an honor and a pleasure to serve ERS in a number of different roles over the years and I hope to continue to serve in whatever capacity I can to contribute for the benefit of the trust and beneficiaries,” Tull, 74, said Thursday. 

“I have been fortunate in having a tremendous board that I seek to work with, as well as a nice investment team and that, that I will miss,” he added. 

In 2009, Tull joined the fund after the executive director at the time sought to bring someone with a fresh perspective to the team. Tull, who worked for decades in the private sector, already had spent 11 years advising the ERS pension board. His first role at the fund was as director of strategic research, which he used to energize the hedge fund program. 

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After he took over as chief investment officer in 2012, he continued to build up an allocation to alternatives, such as private equity, private real estate, and hedge funds. Today, the fund holds a 31% allocation in alternatives, up from 26% in 2017. ERS plans to increase that allocation to 34% longer term. 

Several factors propelled the fund’s tilt toward alternatives, Tull said: an increasing number of opportunities the investment team was spotting from inefficiencies in the market, as well as a willingness from the board to take on more risk. ERS also has a 7% actuarial assumption, an increasingly tall order for public pension funds investing in a low interest rate environment. 

“It made a lot of sense to deploy capital in the private side,” Tull said. 

In the dozen years Tull has spent at the Texas retirement system, he has helped double the investment team, as well as expand the ability of the trust to respond to volatility in the investment environment with tactical bands on different asset classes. 

“We’ve been very fortunate we have developed a team and developed a process and all the pieces that go with that to be more effective and be able to compete in a world environment that continues to change by the day,” he said.

About 60% of assets are managed in-house by about 60 investment team members overseeing various asset classes, including high-yield and infrastructure. Administrative and operational staff round out the 79-person team. 

“Tom has been a critical part of ERS’ success,” Executive Director Porter Wilson said in a statement. 

Going forward, ERS will continue to look into credit, particularly in sectors that have been highly penalized, such as leisure and transportation. The pension fund is also looking at niche investments, such as data centers, medical facilities, and multi-family units. 

Retiring may not be the end of Tull’s working life. He already has retired several times before from prior careers. He said he plans to continue working with nonprofits and partake in other activities that give back to his community, as well as spend more time with his family and children. 

“That’s why I like to stay involved and stay engaged with ERS and trying to continue to make more change,” Tull said. “But, as far as CIO, I think it’s time for somebody else to come in with new ideas and new thoughts and take the trust to the next stage.” 

Prior to ERS, Tull was a founding partner at investment adviser Gulfstream Global Investors. He was also the former director of employee benefit fund investments at Ling-Temco-Vought (later known as LTV), a since-disbanded US conglomerate. 

Executive search firm Korn Ferry will help the pension fund find Tull’s replacement in the coming months.

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