Donald Trump illness exposes underlying market tension

Losses in the main U.S. stock indexes on Friday will go down in history simply as small ones in an otherwise choppy week. The immediate reaction in the futures market included an indication of a 500-point drop in the Dow Jones Industrial Average at the open consistent with the uncertainties triggered by the news — from concerns about their health and that of other White House and congressional officials, as well as that of former Vice President Joe Biden, to the implications for the elections, fiscal stimulus and the economy. With that, individual and collective perceptions of what I think of as “human counter-party risk” increases, casting an even larger cloud over prospects for consumption and demand, the viability of certain service sector activities and the overall economic recovery. And behind this conditioning is the seemingly unshakable willingness of systemically important central banks to be ample and reliable injectors of liquidity, with almost total disregard as to the consequences of increasingly disconnecting financial markets from economic realities, including in terms of inequality and future financial stability. The hope is that investors’ persistent liquidity conditioning will act as a bridge to improving fundamentals that will validate currently elevated asset prices and propel them on a firmer long-term footing.