Clinton Health Another Land Mine for Suddenly Vulnerable Markets

Hillary Clinton's Health Becomes a Campaign Question
  • The Democratic nominee felt ‘overheated’ at 9/11 event
  • Stocks and bonds had one of worst days since June on Friday

Investors nursing wounds after the worst selloff in three months for equity and debt markets got another stress to ponder after concerns over Hillary Clinton’s health flared anew.

The 68-year-old Democratic presidential nominee, whose polling edge over Donald Trump has soothed traders who fear ruptures to U.S. policy and see virtue in political gridlock, is suffering from pneumonia and became overheated and dehydrated during a Sept. 11 commemoration Sunday, forcing her to leave abruptly, her doctor said. Clinton was prescribed antibiotics and advised to modify her schedule so she can rest.

Volatility is already resurfacing in markets that had purred along for two months inured to everything from politics to weakening global growth, with the S&P 500 Index getting jarred Friday out of its tightest trading range ever in a selloff that erased about $500 billion of share value. While investors and analysts were reluctant to speculate on Clinton’s health, they said expectations she will prevail in November have been a factor in the calm and predicted the scrutiny will intensify.

“If we found out that there was something catastrophic about her health it obviously would matter, but you have to be very careful about extrapolating shorter-term news,” Jonathan Golub, managing director and chief US market strategist at RBC Capital Markets LLC in New York, said by phone. “What we do know is we have two candidates around 70 years old and in reality it must be brutal running around the world for two years.”

Speculation central banks are losing their taste for extra stimulus on Friday tore through the blanket of tranquility that has enveloped global markets. The S&P 500, global equities and emerging-market assets tumbled at least 2 percent in the biggest drop since Britain voted to secede from the European Union. The yield on the 10-year Treasury note jumped to the highest since June and the dollar almost erased a weekly slide.

The extent to which investors have been able to ignore politics is illustrated by the CBOE Volatility Index, the options-derived gauge of price turbulence that in August recorded one of its lowest monthly averages since the bull market began in March 2009. A measure of cross-market volatility encompassing equities, rates, currencies and commodities overseen by Bank of America hit its lowest level of the year last week.

To many bears, the calm betokens complacency and that’s what gave rise to Friday’s fireworks, with plunging stock and bond markets the predictable consequence of central bank policies that have allowed investors to ignore slowing economic growth, falling earnings and rising share valuations. U.S. stocks started Friday trading above 20 times annual earnings, one of the highest multiples since the internet bubble.

“We’re fragile right now,” said Kevin Kelly, chief investment officer at Recon Capital Partners LLC in Greenwich, Connecticut, which oversees $350 million. “It’s already priced into the market that Hillary Clinton is going to be president so right now anything that changes that narrative is going to give the market a pause to consider what that would mean.”

S&P 500 futures expiring in December dropped 0.6 percent at 10:05 a.m. in London.

Clinton’s sudden departure from the ceremony in New York and a bystander’s video showing her appearing to stumble as she was helped into a black van by aides and Secret Service agents is sure to resurface health questions. She blamed recent coughing jags on allergies, but Republicans have sought to raise questions about her fitness for office, particularly following a concussion in 2012 that resulted in a blood clot.

“If Clinton’s health becomes a larger factor with regard to voter decision-making, the market may have to recalculate the risk-reward of a regime change in the White House, as Clinton right now is assumed as a continuity from the current administration,” Yousef Abbasi, global market strategist at JonesTrading Institutional Services LLC, said by phone. “Obviously today is another thing that’s going to draw closer attention.”

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