Bernie Sanders’s Tight Primary Win Stokes Wall Street’s Election Hopes

(Bloomberg) -- Bernie Sanders’s narrow New Hampshire primary win is bolstering investor perceptions that either President Donald Trump is well-positioned for re-election or a moderate Democrat may yet emerge as the nominee.

Either of those scenarios would be positive for the stock market, analysts said on Wednesday. The S&P 500 rose as much as 0.6%, notching a new record in early trading, with gains driven largely by easing concern about the spread of the coronavirus.

Big banks, which are viewed as facing risks from a progressive Democrat, outperformed the broader market, with the KBW Bank Index up as much as 1.4%. Top index gainers included Bank of America Corp. and Citigroup Inc. The Health Care Select Sector SPDR Fund, known by its ticker XLV, which is also viewed as exposed to left-leaning candidates, rose as much as 0.6% to the highest since Jan. 22.

Read more: Feb. 11, 2020 Election Is Playing Out Well for Stocks: Wall Street Votes

Here’s a sample of the latest commentary:

Raymond James, Ed Mills

“The lack of a Sanders surge/the increasing likelihood of a brokered convention will be viewed as market positives,” Mills wrote in a note. Markets still see “this election as Trump’s to lose,” he said.

Sanders will “need to consistently win greater than 50% of the vote in upcoming contests -- which is possible, but less likely with multiple other viable candidates,” Mills added. “A potential nightmare scenario for Democratic unity would be a Sanders plurality but the nomination going toward another nominee,” which would exacerbate the 2016 tensions of when Sanders supporters felt the party had tilted the nomination towards Hillary Clinton, Mills warned.

Read more: Markets See Win-Win-Win No Matter How Sanders Does Tuesday

Vital Knowledge, Adam Crisafulli

Sanders’s victory “will be seen as a knee-jerk positive for markets (given he is considered the ‘easiest’ opponent for Trump to face) BUT keep in mind that Sanders and Warren combined for just ~35% of the vote, down nearly 10 points from ~44% in Iowa,” Crisafulli wrote. That suggests “voters are shifting away from the far left-wing of the party.”

Veda Partners, Henrietta Treyz

“Sanders won but lost more,” Treyz wrote in a note, as his “margin of victory was so disappointing and his support so meaningfully reduced from 2016 levels that the narrative going into Nevada (Feb. 22) and California (March 3) will likely be that he’s a candidate on the decline instead of one on the rise.”

“Sanders needs the moderate wing of the Democratic party to implode or to eke out a tenuous delegate win in the next few months in order to be the party nominee in July,” she said. “The path forward for him looks weak in our view and we continue to believe that while he has a strong base of supporters, he also has a ceiling, which last night indicated, could be even lower than we’d anticipated.”

Treyz still sees only a moderate Democratic candidate as capable of ushering in enough new senators to flip the Senate. “Without that, a Democratic president would be forced to act via the relatively limited scope of executive orders and tariff policy,” which would mean no tax cuts or increases would be passed in 2021, nor would massive Medicare for All-style proposals. She also continues to see increased deficit spending, likely on infrastructure, no matter who’s elected in 2020.

KBW, Brian Gardner

“If Sanders is the Democratic nominee and polls show a reasonable chance of him winning the election, then we expect a sharp market sell-off, especially for financials,” Gardner wrote. Investors have so far discounted Sanders’s chances; however, “at some point investors might reassess this scenario and it is not, in our view, priced into the market.”

If polls in the fall show Trump in a strong position, a “favorable” market reaction is likely, even though there’s no clear economic agenda for his second term, Gardner said. Trump’s re-election would ensure the 2017 tax cuts are secure and that “regulatory easing will not be reversed,” he said.

A second Trump term may also bring “some cleaning up of unfinished business,” he said, including ending Fannie Mae and Freddie Mac’s conservatorship, addressing equity market structure issues, and the Department of Labor completing work on a fiduciary rule mirroring the Securities and Exchange Commission’s best interest standard, he said.

If a centrist Democrat like Amy Klobuchar, Pete Buttigieg or Michael Bloomberg appeared poised to win, Gardner would expect a “mild sell-off in equity markets.” As those candidates haven’t promoted anti-Wall Street or broad student loan forgiveness plans, Gardner sees major financial services policy changes as unlikely.

Cowen, Chris Krueger

“It looks increasingly like we will be going to Milwaukee without a nominee,” Krueger wrote, adding that “Sanders won New Hampshire. It was a much tighter medal stand and Bernie was way off his 2016 margin, but a win is a win.”

AGF Investments, Greg Valliere

Sanders’s win wasn’t “impressive,” Valliere wrote. At the moment, “he’s the shaky front-runner.” Valliere also sees a contested — or brokered — convention looming for the Democrats.

“All of this is exceedingly good news for Donald Trump, who will benefit because one huge chunk of Democrats — angry leftists or disenfranchised moderates — may be inclined to sit out the November election if the party’s nominee is the product of a brokered convention,” he said.

Pangaea Policy, Terry Haines

“There is no Democratic ‘moderate/centrist lane,”’ Haines wrote. “Investors shouldn’t fall for the line Beltway Democratic establishment types are telling themselves, that in the aggregate ‘moderate/centrists’ overall are doing better than ‘progressives.’”

Haines said that Democratic primary voters are at least 70/30 progressive, the November electorate won’t view the eventual Democratic nominee as moderate/centrist; and “markets will react negatively if any Democratic nominee looks like he or she has a decent shot of beating Trump.”

He added that Mitch McConnell is the “most important U.S. politician” for markets, as McConnell is the “emblem of the Republican Senate bulwark holding the U.S. back from an all-Democratic Washington and a significant negative market correction.” He sees the Senate as “very likely to remain Republican majority, but if markets get even a sniff that Majority Leader Schumer might be on the cards, look out below.”

Height Capital Markets, Clayton Allen

Sanders’s “narrow win last night (in a state he carried handily in 2016) suggests that his appeal may not be as widespread as some suggest,” with “several opportunities for more moderate candidates to ultimately claim victory,” Allen wrote.

“The moderate lane of the party still has a larger vote share than the progressive lane, leaving a clear path for a consensus moderate,” he said.

Beacon Policy Advisors

“The Nevada caucus is well-positioned for Sanders, who draws strength from labor and Latinos (groups with which neither Buttigieg nor Klobuchar have inroads),” Beacon wrote.

(Disclaimer: Michael Bloomberg is seeking the Democratic presidential nomination. He is the founder and majority owner of Bloomberg LP, the parent company of Bloomberg News.)

To contact the reporter on this story: Felice Maranz in New York at fmaranz@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Richard Richtmyer, Jennifer Bissell-Linsk

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