There is a growing undercurrent in markets that say a battle this fall between self-described socialist Senator Bernie Sanders and President Donald Trump could be bad news for stock prices.
As evidenced by the market’s strong run-up in 2020, investors have yet to exit stocks on fears of a big government Bernie winning the Oval Office. But his continued strong showing in debates and national polls may lead to some profit-taking sooner rather than later. The concern - Sanders shocks the market-friendly Trump.
“There is definitely kind of fear [among clients] if you get a candidate like Sanders or say Elizabeth Warren,” said UBS global investment strategist Jason Draho on Yahoo Finance’s The First Trade. For now, the Sanders surge is keeping a lid on the market potential argues Draho.
“It’s more of a headwind that keeps markets from rising higher,” Draho noted.
Sanders is viewed by most rainmakers on Wall Street as anti-big business, anti-stock market and anti-wealth creation. In other words, bad for risk-taking in numerous asset classes, save for perhaps gold and bitcoin.
If Sanders is president, corporate taxes will likely head higher to pay for his Medicare for All plan and other social safety net programs. Greater regulation around stock buybacks and corporate governance could also come into play, especially if Sanders appoints Warren as Treasury Secretary, as some have speculated.
Draho isn’t alone on the Street in sounding the alarm bell on Sanders.
Billionaire investor Leon Cooperman said in a recent interview Sanders is more dangerous to stocks than the coronavirus. Cooperman has been a frequent critic of Sander’s and Warren over the past year.
“But Bernie, I believe, is stronger than people think, and [the] market is going to have to deal with that,” cautioned DoubleLine founder Jeffrey Gundlach. Even former Goldman Sachs CEO Lloyd Blankfein (a Democrat) is quoted in a new Financial Times story as saying he would perhaps vote for Trump instead of Sanders.
It’s worth noting Blankfein has been a frequent target for years by Sanders.
“The market wants Trump to stay president because he is the most shareholder friendly,” says Sevens Report Research founder Tom Essaye.
Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Watch The First Trade each day here at 9:00 a.m. ET or on Verizon FIOS channel 604. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.