Why the Markets May Breathe Easier About November
Author: Greg Valliere
January 15, 2020
AFTER LAST NIGHT’S INCONCLUSIVE DEBATE, it strikes us that only three candidates have a plausible chance of winning the general election in November — either Donald Trump, Joe Biden, or Mike Bloomberg — and all of them are generally acceptable to the markets.
MORE ON THIS IN A SECOND, but first a few comments on the Iowa debate. Pete Buttigieg is the most articulate candidate in the race, but he broke no new ground last night. Elizabeth Warren had the strongest performance and may have
ended her slide. Bernie Sanders didn’t help himself much. Joe Biden made no glaring errors but frequently stumbled. Amy Klobuchar was good but probably will stay in single digits. And we reiterate — what is a lightweight like Tom Steyer doing on the stage?
THE MARKET IMPACT: The biggest political story for investors this winter is the bitter Warren-Sanders feud, which threatens to tear the left apart. Neither has a great chance of winning the nomination — and they have a very slim chance of winning in the general election. We think only three candidates have a path to victory in November:
Trump: He’s the early favorite, well ahead in Las Vegas betting odds. We think Trump is far from a lock in the Electoral College; his major risk is overconfidence and self-inflicted wounds. As for Trump’s market impact, the S&P 500 is up by about 50% since his inauguration, with low interest rates and moderate economic growth. Most professional investors we talk with don’t like Trump personally, but they’ll gladly take those results for another four years.
Biden: He sure didn’t look dynamic last night, but Biden may be calculating that after four years of Trump, the electorate wants to lower the temperature. Biden is the safest bet to win the Democrats’ nod, and while he would raise some taxes and toughen regulations, he’s hardly an anti-business radical.
Bloomberg: We get emails from readers who are incensed that a candidate could buy the presidency, but Bloomberg has a decent chance — he’s a serious challenger, willing to spend well over a billion dollars. His ads are excellent and he’s methodically assembling a top-notch campaign machine, the best that money can buy. As for the market impact, Bloomberg unabashedly loves Wall Street and he scolds against huge spending programs; he’s a moderate Republican at heart.
BOTTOM LINE: The great market fear — a sharp policy shift leftward a year from now — appears to be increasingly unlikely. All the hype about socialism and dramatically higher taxes seems exaggerated; the November winner is unlikely to rock the boat.
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