Betting markets have turned decisively toward an expected victory for Joe Biden in November — and asset managers at major investment banks are preparing for not only a Biden win, but potentially a Democratic sweep of the Senate and House too.
Why it matters: Wall Street had its chips on a Donald Trump win until recently — even in the midst of the coronavirus-induced recession and Biden's rise in the polls.
- The shift is the latest indicator of how quickly the political and business worlds have aligned in the view that President Trump is unlikely to win a second term as COVID-19 infection numbers have spiked again and the economy looks to be stalling.
By the numbers: A Citigroup poll of 140 fund managers released last week found that 62% expect a Biden win, compared to 70% who expected a Trump victory in the same survey in December.
- And, according to Kace Capital Advisors managing director Kenny Polcari, "Talk of a Democratic sweep [is] now common" among investors.
The impact: Biden's proposed policy reversals from Trump, combined with a historically liberal Democrat-led House and Senate, could impact every corner of financial markets, from tech, chemical and health care companies' stock prices to oil futures, private equity investments and the value of the U.S. dollar.
What we're hearing: "We’re looking for higher taxes," Stephen Gallagher, U.S. chief economist at Société Générale, tells Axios, noting that a Biden win now looks "more and more certain."
- "In the first two years of the Trump administration the markets were very focused and driven by the tax cuts and the anticipation of what that does for after-tax corporate profits and the overall impact on the economy."
- "Now we have to position ourselves to look for some reversal of that."
Yes, but: U.S. stock indexes had been closely tracking Trump's re-election chances, especially the tech-heavy Nasdaq, which rose as Trump's poll numbers and betting odds improved, but have lost interest of late.
- The Nasdaq is up 9% and the benchmark S&P 500 has risen 4% since June 1, during which time betting odds have moved from a 2-point spread in favor of Trump to a nearly 20-point spread for Biden, according to the RealClearPolitics database.
Thanks to the unprecedented action of global central banks, tax rates may not matter that much, notes Ellis Phifer, managing director of fixed income research at Raymond James.
- In fact, "with global central banks and governments at the ready to add to the 'liquidity,' there may just be enough to go around to push risk markets ever higher."