Rejoice traders. The Iowa caucus debacle likely means risk on for stocks, especially as fears over the coronavirus subside a touch.
“Look, this means that a centrist has a good clear lane to win. Or this means that the president is still the favorite to win the general election,” Compass Point Research director of policy research Isaac Boltansky said on Yahoo Finance’s The First Trade.
The battle to choose a Democratic candidate to challenge President Trump in the general election later this year was thrown into a tizzy Monday evening. Results for the Iowa caucus were delayed indefinitely due reportedly to issues with a mobile app.
The debacle — which Trump of course jumped on via a tweet — could slow the momentum for extreme left wing candidates (both generally viewed as anti-investor) Senators Bernie Sanders and Elizabeth Warren. Both were showing solid momentum among voters into Iowa, with Sanders taking the front-runner position in the hours before polling began in Iowa.
But with the day-after momentum stunted, to Boltansky’s point former vice president and centrist Joe Biden could gain steam headed into New Hampshire. While Biden isn’t super stock market friendly (he has proposed reversing much of Trump’s corporate tax cuts), he is viewed as a way better option for markets as president than Sanders or Warren.
Big WIN for us in Iowa tonight. Thank you!— Donald J. Trump (@realDonaldTrump) February 4, 2020
“In the short term (i.e. Feb/April/May, when the primary is ongoing) should candidates Warren or Sanders emerge as the front-runner, that would create more volatility in stocks because those two candidates have platforms that are the most “anti-business” (from a market standpoint),” reminds Sevens Report Research founder Tom Essaye. “So, the short-term impact should Sanders or Warren become the clear front-runner over the next two to three months it would be to create volatility and a market headwind (although it wouldn’t derail the rally by itself).”
Coincidence or not, it’s interesting that the Dow Jones Industrial Average rallied close to 500 points on Tuesday in the wake of the Iowa caucus mess. Even still, pros caution there remains a long time before the presidential election and extreme candidates such as Sanders and Warren could go onto win the Democratic nomination. That means trading election results between now and Super Tuesday is incredibly risky.
“My point to them is that the general election is still 272 days away. There are dozens of news cycles and issues that will dominate from here to there. And secondly, Iowa was never going to be the big decider,” says Boltansky. “It’s only 1% of the total delegates. We won’t get real clarity for the investment community until Super Tuesday which is on March 3, at the absolute earliest.”
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.