(Bloomberg) -- Investors and Wall Street analysts are watching Monday’s Iowa caucuses for signs of how well a surging Bernie Sanders ends the night. So far, markets have largely shrugged off the ramifications of a potential Sanders win, but concern about the senator’s plans for health care, banks and private equity may rise if he emerges with unexpected strength, analysts said.
On Monday, stocks across the board rebounded from the worst week in six months amid optimism about efforts to contain the coronavirus. The S&P 500 closed 0.7% higher.
Here’s a sample of the latest commentary:
Compass Point, Isaac Boltansky
“The market has largely dismissed the Sanders campaign, but a victory in Iowa coupled with at least two weeks of front-runner framing by the press could catalyze a meaningful market reaction,” Boltansky wrote in a note. Regardless of who wins, he added, there’s likely to be a “lengthy primary battle that will remain unclear until Super Tuesday at the earliest.”
A Sanders win may “weigh on health insurers, big tech, education services companies, M&A advisories, fossil fuel businesses, for-profit prisons, and large banks/PE firms,” he said. On the other hand, Sanders’s campaign momentum may help Puerto Rico banks, workforce/manufactured housing companies, like UMH Properties Inc., childcare providers such as Bright Horizons Family Solutions Inc., and “lower price-point” homebuilders, he added.
On Monday, UMH Properties rose 1.8%, the most since mid-December, while Bright Horizons climbed 1% to the highest since August.
KBW, Brian Gardner
Gardner expects Sanders will win the Iowa caucuses, but sees Biden as a “slight favorite to win the Democratic nomination.” He added that the market hasn’t priced in Sanders’s “rise in the polls the same way it did when Senator Elizabeth Warren rose in the polls in the fall of 2019,” perhaps because investors doubt Sanders can beat Trump in November, or perhaps because Sanders’s “agenda for the financial sector lacks the specificity of Senator Warren’s platform.” Whatever the reason, he said that a “Sanders win on Monday could pressure stocks, especially financial stocks.”
Last week, Gardner wrote that if Sanders “wins the nomination and starts to show strength in general election polls, then we expect markets will react negatively, especially the private equity and large-cap bank sectors.” Even so, Gardner added that “passing any controversial legislation through Congress will face big challenges,” and that he’s “highly skeptical” about proposals like Warren’s private equity plans, break-up-the-banks efforts, wealth taxes and Medicare for All, as passing an “aggressive left-wing agenda that some centrists Democrats will likely oppose will be an enormous lift.”
Evercore ISI, Sarah Bianchi
“If Sanders wins tonight, he is well positioned to win the next two contests in New Hampshire and Nevada,” Bianchi wrote. At the same time, she added that “there is a lane for a liberal and a moderate in this race. Therefore, how everyone finishes matters and will determine whether this is on track for a two-leader race or something far less clear.”
Cowen, Jaret Seiberg
Seiberg said that he’s “most interested in the totals for the moderate candidates versus the totals for the two progressive candidates.” If moderates capture more than 60% of the vote, Cowen will be “less concerned” about a Sanders caucus win because “proportional delegate allocation will mean there are more moderate delegates than progressive delegates.”
“Progressives are the ones advocating the most extreme positions including breaking up the banks, restoring the Glass-Steagall separation between commercial and investment banking and giving the federal government an even greater role in supplying financing for housing,” Seiberg noted.
At the same time, even the more moderate Democrats are pushing agendas that would hurt financial and housing services companies, he said, like “naming a tough enforcer as the CFPB director, raising the corporate tax rate and relying more on leverage ratios than risk-based ratios when looking at bank capital adequacy.” Seiberg added that all Democratic candidates likely back a 36% cap on interest rates, changes to the bankruptcy code to make it easier for individuals to shed debts, and legislation to legalize cannabis.
Capital Alpha, Charles Gabriel
“The better Sanders does, or weaker Biden emerges, the more markets might cringe; the bigger the surviving field, the better for a market-friendly Trump re-elect,” Gabriel said.
He’ll watch for analysis of where turnout exceeded expectations, including evaluating rural versus urban and surburban areas; whether Sanders’s appeal to Hispanics proved “conclusive,” and for “how much of an edge Biden might retain among voters concerned about Sanders’s electability.”
Janney, John Rowan
Rowan flagged a “shift to the far left,” and continues to think that “any momentum from candidates like Sanders and/or Elizabeth Warren is a risk” to specialty finance companies.
He cited Sanders’s bids to nationalize credit reporting and the House’s efforts on credit bureau consumer scoring, an idea he called “patently ridiculous.”
“Government is never as efficient as private markets and allowing a partisan government agency to control consumer creditworthiness is a significant moral/systematic hazard,” he said.
On Monday, sub-prime lender Enova International Inc. and installment lender Elevate Credit Inc. tumbled. Enova sank 17%, the most since November 2015, while Elevate shed 18%, the most since October 2018. Other installment and personal lending companies with declines included OneMain Holdings Inc., Curo Group Holdings Corp., and World Acceptance Corp.
SunTrust, Neal Dingmann
Exploration and production firms with exposure to federally-owned land leases are in focus ahead of the Iowa caucuses, as several Democratic candidates have supported a fracking ban on federal land, Dingmann said.
Note: Michael Bloomberg is seeking the Democratic presidential nomination. Bloomberg is the founder and majority owner of Bloomberg LP, the parent company of Bloomberg News.
--With assistance from Michael Bellusci.
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