Every four years, Wall Street pundits butt heads on how to trade the biggest political risk on the planet.
Q3 2020 hedge fund letters, conferences and more
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.”
Read the full article here by Justina Lee, Advisor Perspectives
