S&P 500 Futures Show Signs of Calm After Weekend of Covid Stress

(Bloomberg) -- Volatility eased in U.S. equity futures as optimism over President Donald Trump’s medical prognosis and hopes for fresh economic stimulus put a brake on selling that whipped up Friday.

Dip buyers showed up at the 7 a.m. Tokyo open, bidding up December contracts after Trump’s doctors insisted he’s doing well and could be discharged as soon as Monday. Markets fell on Friday after Trump’s diagnosis. They remained up for the week as some traders speculated the president’s illness raised the odds for aid to the economy from Congress and data showed job gains slowed in September and many Americans quit looking for work.

“The dramatic turn of events may be a catalyst for a stimulus agreement – or it may not; we wait for bills to be put to Congress and votes to be taken,” said Julian Emanuel, chief equity strategist for BTIG, wrote in a note. “With key economic data extending its run of disappointments versus expectations and high-profile corporate layoffs, additional aid would seem imperative.”

U.S. shares have stayed relatively resilient since Trump’s positive test, in part because of speculation Congress will move toward an aid package after large parts of the current bill expired at the end of July. While the president urged lawmakers to get stimulus passed in a weekend tweet, little new progress was reported since Friday.

Futures on the S&P 500 gained 0.7% at 2:31 p.m. in Tokyo. The underlying gauge rose 1.5% last week, though Friday saw a 1% selloff. Contracts on the Dow Jones Industrial Average added 0.7%, while Nasdaq 100 futures climbed 0.9%.

The yen fell against all Group-of-10 currencies as traders shunned haven assets. It dropped 0.3% against the dollar to 105.56 yen. Risk assets including the Australian dollar and the Korean won gained.

“Optimism over Trump’s health is growing rapidly to prompt purchases in stocks, while the yen is sold,” said Masakazu Satou, a currency adviser at retail FX brokerage Gaitame Online in Tokyo. “Risk sentiment could improve further as Trump’s condition appears to be better than originally believed. But now we need to see whether Trump will actually be discharged from the hospital later on Monday.”

Forty-five minutes before futures began trading, the president tweeted a one-minute video from his hospital suite thanking the doctors and nurses at Walter Reed Medical Center.

There’s some precedent for stocks to stay calm in the face of presidential health shocks. Historically they have had a fleeting impact on asset prices, according to Sam Stovall, chief investment strategist at CFRA Research. Everything from hospitalizations to deaths have mostly resulted in declines of 3% or less that lasted just a few days, his study shows.

Still, there’s no denying the presidential election has put investors on high alert. Partly driven by the prospects of a contested election, option traders have stepped up hedges against market turmoil way past Election Day into December. Polls over the weekend showed Democratic challenger Joe Biden maintaining a lead with less than a month to go to the vote.

Volatility had gripped the markets since the end of August, over concern that the torrid summer rally had stretched valuations to levels not seen in two decades. At one point Friday, the CBOE Volatility Index jumped by the most in the month. It ended the week at 27.63.

“Markets are in a waiting mode now with some optimism and expectations that Trump may show some compromising stance after recovering from Covid-19 to push talks on stimulus forward,” said Kumiko Ishikawa, a currency analyst at Sony Financial Holdings. “Still, much remains uncertain.”

©2020 Bloomberg L.P.