Investors May Be Denying Risks of a Democratic Win, Analysts Say
(Bloomberg) -- Investors may be underestimating the risks posed by the possibility that the Democrats, particularly Senator Elizabeth Warren, will win in 2020, some analysts said in commentary ahead of Thursday night’s second debate.
Analysts also noted that big banks managed to avoid the spotlight during Wednesday’s first debate, but that may change when Senator Bernie Sanders takes the stage.
Stocks across the board rose in mid-day Thursday trading, helped by optimism about trade talks at the upcoming G-20 summit. Financials were the best-performing S&P 500 sector, with big banks including Bank of America Corp., Citigroup Inc., Wells Fargo & Co. and Morgan Stanley outperforming.
Here’s a sample of the latest commentary:
RBC, Lori Calvasina
U.S. equity investors may have “gotten a bit complacent on the 2020 election” in terms of how the Democratic nomination will resolve, Calvasina wrote in a note.
A June RBC survey showed most investors think that Joe Biden will win the nomination, she said. A Biden general election victory would be viewed as neutral for the stock market, but most survey respondents said any other Democrat winning would be negative, she said. The strategist added that Biden has been fading in the polls, while Warren has been gaining.
RBC continues to view the 2020 election as a “key risk factor” for stocks in the year ahead, with most major S&P 500 sectors having policy risk if Democrats sweep.
AGF Investments, Greg Valliere
Elizabeth Warren was “solid, passionate, wonky,” during Tuesday’s debate, Valliere wrote. He said that Warren is clearly still a top-tier candidate, and poses “an enormous threat to the financial services industry.”
Wednesday night’s big winner was Donald Trump, he said, as the debate reinforced Trump’s “argument that the Democrats are moving toward a socialist agenda.” That may give Biden an opening, Valliere said. If Biden can avoid gaffes on Thursday, he may “emerge as the affable moderate who can win Pennsylvania and Michigan.” If he stumbles, the Democrats’ “sharp veer to the left would gain momentum, and Trump would become the clear general election favorite.”
Height Capital Markets, Clayton Allen
Height expects Thursday’s debate round will be “more interesting” than Wednesday’s, with a “match-up between the remaining top candidates opening the possibility for much more significant policy announcements.” That may impact markets, he said, flagging the response to Warren’s private prison proposal as a recent example.
Compass Point, Isaac Boltansky
The first debate reinforced the “belief that financial services are a secondary issue in the Democratic presidential race,” as Wall Street themes were generally absent, Boltansky wrote in a note.
Democrats seem “primarily focused on corporate consolidation, tax policy, health care, and economic inequality,” Boltansky said. He expects “a more pronounced rift between progressives and moderates in due time, which could be on display as early as this evening with Biden on the stage.”
Raymond James, Ed Mills
Democratic candidates didn’t focus on attacking “Wall Street” or big banks during their first debate, though that may change when Sanders takes the stage, Mills wrote in a note.
Mills saw “healthcare policy, inequity in the tax code, antitrust scrutiny, climate issues, and geopolitical challenges” as Wednesday night’s leading topics, with China regarded as a consensus geopolitical challenge. Democrats will likely look to capitalize on the unpopularity of the new tax code, with tax changes as a probable policy goal if they win.
©2019 Bloomberg L.P.