Wall street was already girding itself for an uniquely turbulent us election, but the news that president donald trump has tested positive for coronavirus adds another source of nervousness to the outlook.

Stocks on wall street seesawed in early trading on friday, with the s&p 500 falling as much as 1.7 per cent before paring its losses by late morning in new york. the vix volatility index a gauge of the us stock market choppiness implied by options prices, often referred to as wall streets fear gauge climbed as much as three points to a high of 29.9, well above the long-term average of about 20.

The jitters, just days after a chaotic debate between mr trump and his democratic rival joe biden, suggest that the run-up to the election in november could be testing for investors who were already preparing for a potentially turbulent period after the vote.

The bond and stock markets dont usually do well with uncertainty, and today we have introduced more than our expected share of it, and with only 31 days until the election, said kevin giddis, chief fixed-income strategist at raymond james. this is not good on many levels, and you can see the wheels spinning, with many investors trying to figure out what this means, and how they should position their portfolios.

Analysts at rabobank went through a list of questions running through their heads.does the fact that trump will now spend half of the remaining time prior to the election in quarantine mean his odds of re-election have fallen? does his testing positive give the lie to his repeated assertion that the virus is under control? they wrote on friday morning.

Line chart of s&p 500 futures showing wall street futures pressured by trump coronavirus news

However, a rapid recovery ahead of the election could boost mr trumps chances, for example if it precluded further fractious debates, or highlighted his self-professed strength, the analysts speculated.

Such a development would [also] allow the president to claim that the democrats have been overly alarmist as regards the virus and that the economy would be unnecessarily ruined in their hands, rabobank added.

Even before the news of president trumps infection became public, betting markets implied probability of mr biden winning the white house had risen significantly.

Biden odds improved after combative debate with trump

Nannette hechler-faydherbe, chief investment officer for credit suisses international wealth management division, said mr trump contracting the virus was a timely reminder to markets that a resurgence of the pandemic remained a major danger.

While this move may reflect initial caution in the face of potential risks around the us presidents health, it more likely serves as a wake-up call for financial markets to expect a seasonal re-acceleration of covid-19 infections around the world, she said. what can happen to the us president can happen to the population more broadly, with the potential disruptions to economic activity that this may entail.

Highlighting how investors fret volatility will remain elevated, vix futures contracts maturing in october which cover the run-up to the election november and december all nudged up about one point, to roughly 32-33 points.

Analysts stressed that the impact of the news on the outcome of the election, if any, was highly uncertain. but the knee-jerk reaction of many investors was to head for safety. were in territory where theres no rhyme or reason to what markets do today, said george pearkes, an analyst at bespoke investment group. its all psychological.

Line chart of vix futures by maturity (points). showing volatility "kink" around us election becoming more pronounced

Futures contracts tied to the vix that mature around the time of the us election and even after that have been edging higher for months, as investors have grown increasingly concerned that no matter who wins the vote, the other side will dispute the result and it will lead to a drawn-out process.

Mr trump has fanned those fears, by equivocating on whether he would commit to a peaceful transition of power in the event that he loses, with the white house incumbent instead repeating without evidence his assertion of widespread fraud affecting the postal votes sent out due to the pandemic.

However, mr pearkes said that the likelihood of post-election political turmoil was probably overdone, given the scale of former vice-president joe bidens lead in most polls.

There are risks around the transition and how it evolves, but its easy to get carried away by narratives, he said. if trump loses by 7 points [the current national polling] then its hard to see him pulling any monkey business.

Adam sender, chief investment officer of sc&p, an investment group, also stressed that mr trumps diagnosis was unlikely to weigh on markets beyond the immediate term.

The market has gone through a lot of trauma this year and has rallied, he pointed out. while the president getting this is upsetting, we have no idea how sick he is and idontsee this as being devastating news. i wouldnt be surprised if the market rallies back pretty strongly.