If the coronavirus wins, Donald Trump could lose

If the coronavirus wins, Donald Trump could lose
MIH83 / Pixabay

The coronavirus may be showing signs of a slowdown, but fear of it is now starting to grip global financial markets. The impact of the deadly virus could be more severe on the U.S. than on many other countries for several reasons, such as falling stock markets, rising recession fears and the upcoming presidential election. Against such a backdrop, Goldman Sachs has issued a warning that Trump supporters may not like. According to the investment bank, the coronavirus could cost President Donald Trump the election.

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Q4 2019 hedge fund letters, conferences and more

How the coronavirus is affecting the financial world

On Thursday, major Wall Street indices plunged for the sixth straight day as investors' concerns over the rapid global spread of the coronavirus intensified. The Dow Jones Industrial Average lost about 4.44% yesterday, while the S&P 500 lost 4.43%, and the Nasdaq Composite shed 4.61%.

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Due to uncertainty in the stock markets, gold has gained in value. Additionally, long-term U.S. bond yields have dropped to record lows. Other market measures, such as the VI, a measure of market volatility, and the CNN Business Fear & Greed Index, are signaling extreme fear in the market.

Prior to the outbreak, this year was expected to be a good one for corporations. Experts believed that after the lackluster 2019, corporate America would rebound this year. Now, thanks to the coronavirus, many companies have already warned about a hit to their earnings, at least for the first quarter.

For instance, blue chip firms, including Priceline owner Booking Holdings, Budweiser brewer Anheuser-Busch InBev, Microsoft, Apple and more have already warned that the coronavirus will hurt their financial numbers.

"The trajectory of the U.S. and global economy is highly uncertain at this time," Goldman Sachs said in a recent report, according to CNN. Further, the firm added that "a more severe pandemic could lead to a more prolonged disruption and a U.S. recession."

Coronavirus and Donald Trump: connection?

In addition to the financial turmoil, the current political situation in the U.S. adds to the uncertainty for investors, who are still unsure about how to proceed in the epidemic-hit market. Putting investors' and companies' fears into words, Goldman Sachs warned that U.S. companies won’t see earnings growth in 2020.

The bank also had a warning for Donald Trump, provided the coronavirus pushes the U.S. into a recession.

“If the coronavirus epidemic materially affects U.S. economic growth it may increase the likelihood of Democratic victory in the 2020 election,” Goldman Sachs said in a report published Wednesday night, according to Mercury News.

The report noted that its conclusion is based on the likelihood of the virus becoming widespread. Many have been hoping for the continuation of the tax-friendly and regulation-light approach introduced under the Trump administration. Trump himself has been working to boost stock prices.

However, if what Goldman Sachs predicts about Donald Trump and the coronavirus becomes reality, then it could again be negative for investors. History has shown that a slowdown in the economy is never good for a sitting president. Something similar happened in 1992, when President George H.W. Bush was unseated by Bill Clinton.

Goldman Sachs also noted that the economic growth during the second quarter of an election year had been a “key predictor” of  previous presidential results.

Recession fears looming over the U.S.

Former Federal Reserve Chair Janet Yellen echoed similar comments earlier this week. She warned that the outbreak could have serious consequences on global growth and push the U.S. economy toward a recession.

“We could see a significant impact on Europe, which has been weak to start with, and it’s just conceivable that it could throw the United States into a recession,” Yellen said, according to Bloomberg News.

A country is said to be a recession if it has reported two consecutive quarters of declines in real GDP. However, Yellen noted that the economic impact of the coronavirus will depend on its severity.

So far, 60 confirmed cases have been reported in the U.S. Of the 60, 42 were passengers of the Diamond Princess cruise ship, which was docked in Japan, three were repatriated from Wuhan, and 14 had recently been to China or were spouses of someone who returned from China. The one remaining patient is a California woman who recently been tested positive for the virus. The woman tested positive days after being admitted to the hospital in serious condition.

So far, health officials have not been able to determine where she contacted the virus. She did not have any China-related travel history or exposure. In a news conference on Thursday, health officials said that this case does “appear to be a person who genuinely did acquire their illness in the community."

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