Every four years, Wall Street pundits butt heads on how to trade the biggest political risk on the planet.
This time around, there’s more consensus than usual over the likely winner -- Joe Biden. After that, there’s plenty of disagreement on strategies to wager on an election that’s been flashing warnings of chaos ahead in volatility markets.
After fretting over a President Biden raising taxes and tightening regulations, some stock pundits are now cheering the stimulus and political certainty his administration could usher in.
Foreign-exchange strategists are similarly divided on whether a second term for Donald Trump or a new Biden-led White House would boost the dollar.
All told, market prognosticators are notoriously bad at this stuff. Yet even as the pandemic dominates market moves, the sell-side is full of conviction on how the November vote will spur regime shifts in cross-asset trading.
Here’s how strategists are embarking on the high-wire act of predicting the post-election aftermath.
Biden Will Sink Stocks. No, He’ll Lift Them.
Barclays Plc and Saxo Bank say a Democratic win could be bad for stocks because of higher taxes. The former estimates Biden’s proposed tax hike amounts to rolling back half of Trump’s 2017 cuts and would shave 5% off equities. JPMorgan Chase & Co. and Evercore ISI meanwhile reckon a stimulus-friendly “blue wave” might lead to a risk-on rotation across sectors.
Goldman Sachs Group Inc., for its part, offers two separate forecasts depending on whether the market focuses on economic optimism or taxes. In one scenario, the market homes in on faster growth from more fiscal spending, lifting the S&P 500 roughly 4% to 3,633. In the other scenario, investors fretting over higher taxes drag down the benchmark.
The buy-side is similarly divided.
The S&P 500 has gained around 4% this month despite uncertainty over the next stimulus package. To Brian O’Reilly, that’s a sign more fiscal support is probably priced in, but Biden’s tax policies aren’t.
“Markets are expecting a pretty strong V-shaped rebound in earnings next year but obviously, taxes could be one thing that could derail that,” said the head of market strategy at Mediolanum Asset Management. “A Biden victory would be initially viewed as risk-off.”
Yet in the estimation of Brian Jacobsen, a strategist at Wells Fargo Asset Management, the former vice president is still likely to prioritize stimulus before any tax increases, so his victory would still prove positive for the equity market.
At Least We Can Agree A Blue Wave Will Be Green
While predicting how the broader index will react is hard, analysts are more united on how the election will sway sectors. The Biden baskets compiled by Goldman and a partnership between Nomura Holdings Inc. and Wolfe Research, for instance, move roughly in the same direction. Both have rallied along with the Democrat’s chances.
The consensus is that his policies would boost renewable energy, infrastructure and the health-care companies benefiting from Obamacare. Conversely, he is seen as negative for oil and gas, banks, for-profit education and technology.