Illustration: Aïda Amer/Axios

As the coronavirus pandemic continues to worsen and President Trump's approval rating sinks, Wall Street analysts are discussing the increasing probability of a "blue wave" Democratic sweep of the House, Senate and presidency.

Why it matters: With a blue wave, Biden could realistically enact major policy shifts such as higher taxes, climate change reform and increased health care spending.

The state of play: Investors have been pricing in a Biden win for weeks, and now analysts at firms like Goldman Sachs, Société Générale, State Street, TD Securities, UBS and others are preparing for a like-minded Congress in his corner.

  • A lot of investors are designing what Ed Yardeni, president and chief investment strategist at Yardeni Research, calls a "Biden Blue portfolio."
  • "Winners in a blue wave likely would be domestic energy-efficient technologies (e.g., wind and solar), railroads, home builders, building contractors, and engineers, manufacturers and material suppliers, broadband network providers, utilities, autos, medical suppliers, and innovative technologies (e.g., artificial intelligence)," Yardeni writes in a recent note to clients.

Yes, but: "A blue wave should be a significant negative for risk assets due to a progressive policy agenda," analysts at TD Securities say in a note.

  • In addition to raising taxes, influential liberal Democrats like Rep. Alexandria Ocasio-Cortez (D-N.Y.) and Sen. Elizabeth Warren (D-Mass.) have advocated for wealth redistribution, wealth taxes and breaking up Big Tech companies.

Reality check: "This could be a challenging scenario for the markets over the next 6 months, but markets will eventually react positively to the increase in government spending," counters Lee Ferridge, head of global macro strategy at State Street.

  • That spending could include Biden's proposal for a $700 billion investment in research and development for new technologies and a newly unveiled $775 billion plan to invest in child and senior care, provide family leave, and create 3 million new caregiving or education jobs.

What to watch: A blue wave is not a certainty, says Ryan Detrick, senior market strategist at LPL Financial.

  • "Since 1928, the stock market has accurately predicted the winner of the presidential election 87% of the time, including every single election since 1984. When the S&P 500 has been higher the three months before the election, the incumbent party usually has won; when stocks were lower, the incumbent party usually has lost."
  • "Some good news on the economy in the coming months or progress toward a vaccine could potentially get the S&P 500 back to positive territory for the year ... and it’s possible that may help President Donald Trump’s re-election chances."

Go deeper

Blue-county people are flocking to red counties during the pandemic

Adapted from Redfin; Chart: Axios Visuals

A new study from Redfin, the online real estate brokerage, helps connect the dots on whether migrations patterns from blue cities (like Milwaukee, Boston and Portland) to Sun Belt cities (like Tampa, Phoenix and Miami) during the pandemic could have political implications — though the line is a bit blurry.

The big picture: Daryl Fairweather, Redfin's chief economist, told me there was no way to tell if the people moving from blue to red places were attracted by the more right-leaning politics or whether they were Democrats who could potentially shift the center of gravity.

Updated 3 hours ago - Politics & Policy

Coronavirus dashboard

Illustration: Aïda Amer/Axios

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Pence chief of staff Marc Short tests positive for coronavirus

Marc Short with Katie Miller, Vice President Pence's communications director, in March. Photo: Doug Mills/The New York Times via Reuters

Marc Short, Vice President Mike Pence’s chief of staff, tested positive for the coronavirus Saturday and is quarantining, according to a White House statement.

Why it matters: Short is Pence's closest aide, and was one of the most powerful forces on the White House coronavirus task force.