U.S. Stocks Drop After Trump Tests Positive for Coronavirus

U.S. stocks fell Friday, on pace to snap a recent run of gains, after President Trump said he and the first lady tested positive for coronavirus.

The overnight development jolted investors and added to the political uncertainty about a month ahead of the election. For now, some investors’ initial impulse has been to sell stocks, pare back risk as they grapple with the implications of President Trump’s infection.

Concerns range from how the government will function if President Trump’s condition worsens and whether other senior government officials are at risk, some analysts said. There are also worries about whether the development raises the stakes of a contested election or a delay, others added.

“Markets hate uncertainty,” said Lisa Erickson, head of the traditional investment group at U.S. Bank Wealth Management who predicts even more volatility for markets in the final stretch of the election season.

Tom Lee, managing partner at Fundstrat Global Advisors, called the Friday selloff a knee-jerk reaction in a note to clients.

But Mr. Lee said there could be a silver lining: Mr. Trump falling ill repudiates skeptics of masks, personal protection gear and social distancing. That could help contain the recent surge in cases and might push down the path of cases.

New coronavirus cases in the U.S. topped 40,000 for the third day in a row. Total confirmed cases in the U.S. rose to nearly 7.28 million, while the death toll approached 208,000, according to data compiled by Johns Hopkins. Those developments have also been weighing on markets, analysts have said.

Investors were also parsing data showing job creation slowed last month. Employers added 661,000 jobs in September, below economists’ expectations of about 800,000 and the first time since April when net hiring was below 1 million.

On one hand the data solidified the view that economic activity continues to rebound albeit at a slowing rate. On the other, it doesn’t include the glut of layoffs announced by companies in recent days, including Disney, American Airlines and Allstate.

On Friday, the S&P 500 was off its lows of the session but remained down 0.8% in recent trading, on pace to snap a two-day winning streak. The Dow Jones Industrial Average fell more than 200 points to 27588. The Nasdaq Composite suffered bigger losses amid a retreat from tech stocks, falling 1.1%.

The Cboe Volatility Index, a measure of expected swings in the S&P 500, rose 5.5%.

President Trump on Thursday returned to the White House from Bedminster, N.J. Photo: joshua roberts/Reuters

Despite Friday’s losses, all three major indexes were on track to end the week higher. The Dow and the S&P 500 are both up about 1.7% over the past five trading days, while the Nasdaq is up 2.8%.

Travel stocks were among Friday’s biggest decliners, a sign investors expected those companies to struggle further amid signs of a resurgence of the coronavirus. Norwegian Cruise Line Holdings fell 3.5%, while Carnival slid 3.4%. Airliners including Delta Air Lines and Southwest Airlines retreated about 3%.

Energy stocks also fell alongside a slide in crude oil prices.

Some of the most influential stocks in the market based on size also struggled. Apple shares fell 2.3%, while Amazon.com slid 1.5%.

Investment firm Invesco, meanwhile, rose nearly 7% after The Wall Street Journal reported that shareholder activist Trian Fund Management has taken big stakes in it and Janus Henderson Group and plans to agitate for deal making aimed at building a rival to the biggest asset managers in the world.

Investors sought safety in some of the traditional market veins. Utility stocks rose 0.7% in recent trading, while bond yields rose, paring a slide from earlier in the session. The yield on the 10-year U.S. Treasury note was recently at 0.690% after settling at 0.677% Thursday.

Mr. Trump and the first lady are both “well at this time,” according to the White House physician. But the president’s age of 74 puts him at higher risk from the virus. In the final month of the 2020 campaign, Mr. Trump will need to cancel in-person events, potentially including the next debate with Democrat Joe Biden set for Oct. 15.

“It just creates a wider range of outcomes or changes the probabilities of the election,” said Hani Redha, a portfolio manager at PineBridge Investments. “It injects a lot of uncertainty of how it plays out.”

Mr. Biden—who has had a lead in the polls so far—could benefit from continuing to campaign while Mr. Trump is sidelined, if the challenger wasn’t also infected at the last debate, Mr. Redha said. “If this does put Trump out of action, but not Biden, then those odds will only continue to move in that direction.”

Congress is also looking increasingly unlikely to reach an agreement on the new aid package before the election. The House passed a $2.2 trillion coronavirus relief bill Thursday, but Republicans have panned the bill, giving it no chance of getting through the GOP-controlled Senate.

President Trump said early Friday that he and the first lady tested positive for Covid-19 and began quarantining. His announcement, which upends the last month of the 2020 campaign, came hours after top adviser Hope Hicks confirmed being infected. Photo: Andrew Caballero-Reynolds/AFP/Getty Images

“Before we went into summer, I think markets were more hopeful about a fiscal stimulus continuation package going through,” Ms. Li said. “The two sides are still very far apart, so I think markets are becoming more sober about the possibility we may not have an agreement.”

Overseas, the Stoxx Europe 600 edged down 0.3%.

Stock benchmarks in Tokyo, Australia and Singapore all fell, dropping between 0.7% and 1.4%. Markets in Shanghai, Hong Kong and South Korea were closed for holidays.

Write to Caitlin Ostroff at caitlin.ostroff@wsj.com and Michael Wursthorn at Michael.Wursthorn@wsj.com

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