Wall Street Gives Bernie Sanders a Pass…for Now

(Bloomberg Businessweek) -- Bernie Sanders’s blowout victory in the Nevada caucuses on Saturday made him the clear-cut Democratic frontrunner and infused his campaign with an aura of inevitability. That’s set off a new round of panic in some Democratic circles, as the campaigns of moderate candidates bicker over who should leave the race and fret that Sanders may already be unstoppable.

Sanders has plenty of strengths: a clear message, a committed following, an ability to raise lots of grassroots money. But he’s also benefited because he hasn’t been challenged by the interest groups who’d be expected to oppose him. The most obvious Sanders opponent on the planet is the financial industry. But on Wall Street, concern over Sanders’s rise has been practically nonexistent, so he never faced the attacks Elizabeth Warren did when she briefly emerged as the frontrunner last fall.

There’s a reason for this.

“Right now, they don’t believe he can win,” says Jim Bianco, founder and president of Bianco Research. “They think he’s the American version of Jeremy Corbyn.”

A good illustration of recent market sentiment toward Sanders can be found in the betting markets, which are often a good proxy for Wall Street’s collective sentiment on public affairs. Both the Iowa Electronic Markets and PredictIt favor him to win the Democratic nomination. They also show rising odds of Trump being reelected. Bianco says this reflects precisely what he and other Wall Street insiders are hearing anecdotally: The stronger Sanders appears, the greater traders’ confidence that Trump will win reelection. So why panic about a socialist in the Oval Office?

His rise is considered “a positive sentiment in the market,” says Bianco, “because it increases the chances that Trump will win in November.” While traders may not love being whiplashed by Trump’s trade wars and his attacks on the Federal Reserve, he hasn’t impeded the bull market. “He’s the devil we know,” says Bianco, explaining this mindset. “He’s been in there for three years, and everything’s been OK.”

This complacency toward Sanders has undoubtedly helped enable his swift advance toward the Democratic nomination. How do we know? Because Warren, a candidate with similar views, rose to the top of the polls last fall—and was roundly attacked. Many people on Wall Street and in the Democratic establishment considered her electable enough to pose a legitimate threat. (“As Warren Gains in Race, Wall Street Sounds the Alarm,” blared a New York Times headline last November.)

Sanders has never had to face such a hurdle, which may be one reason why his centrist opponents are having such a difficult time slowing him down now.

That may soon change. Just this week, Wall Street has begun to reconsider its disinterested stance toward the Democratic frontrunner. “It appears to us that Sen. Bernie Sanders is not just solidifying his position but also could be a bigger threat to President Trump in the general election than the market appreciates,” Cowen analyst Jaret Seiberg wrote. Beacon Policy Advisers went a step further, claiming in a note that “the market is severely underestimating the chances of Sanders winning the presidency.”

Giving more credence to the possibility of a Sanders victory over Trump is probably a good idea. While betting markets can be a useful indicator of current sentiment, they have a spotty record of calling political outcomes. They failed to predict Donald Trump’s election. They blew the Brexit vote, even while polls indicated it would pass. Ignoring Sanders because bettors don’t think he can win is a pretty big risk to take.

(Michael Bloomberg, founder and majority owner of Bloomberg LP, Bloomberg Businessweek’s parent, is seeking the Democratic presidential nomination.)

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