Wall Street Continues to Bet on Biden Victory

By Mariliana Fotopoulou Friday, October 9, 2020

It seems that the recent debate between the incumbent US President Donald Trump and Democratic presidential candidate Joe Biden yielded enough effect to turn the majority of Wall Street to bet on the latter.

The debate, which took place on September 29, helped Biden gain the lead in a number of national polls, resulting in investors’ moves in several assets, from clean energy companies to Forex derivatives.

Investors Confident

Jamie Cox, a managing partner at the business financial services company Harris Financial Group, said the second debate which may get postponed or not happen at all, “is critical for the president, but I don’t think it matters at all to Biden. He can coast to the election.”

Biden currently holds a 10-point advantage against Trump among potential voters, according to a Reuters poll from October 3. In the face of suspicions regarding the opinion polls following Trump’s surprise victory 4 years ago, investors are now much more confident that Biden will win.

“Our highest probability is of a Biden win and a Democratic sweep and that keeps increasing,” said John Briggs, head strategist at NatWest Markets in the US. “We had some client pushback on that idea but after the debate that turned around quite a bit.”

After the debate, shares of clean energy companies, which are estimated to thrive under Biden’s administration, have risen sharply. Also, predictions that high volatility will storm the currency markets after the elections are fading, indicating that the majority of investors are betting on Biden’s victory.

“Pence delivered his messaging better than Trump, but I want to see how Trump performs in the next debate,” said Akira Takei, global fixed income fund manager at Asset Management One in Tokyo, following the vice-presidential face-off between Mike Pence and Kamala Harris. “It may appear that Biden has the lead, but I don’t trust the opinion polls.”

Biden’s triumph is far from guaranteed and Wall Street continues to hedge their bets. For instance, Biden’s growing lead has barely contributed to eliminating anticipations of post-election volatility in the stock options market, which are estimated to experience constant market swings until the end of the year.

“The (options) market is just pricing in that question mark,” said Jon Cherry, chief of options at Chicago’s Northern Trust Capital Markets.

Moreover, investors are keeping a close eye on potential sentiment setbacks during the race. Robert Phipps, director at Per Stirling Capital Management in Austin, Texas, is keeping around 20% of his portfolio in cash.

“Those polls measure the popular vote,” Phipps said. “The popular vote doesn’t decide the presidency.”

Group of stocks followed by JPMorgan Chase & Co, which include green technology and trade-linked firms that would thrive under Biden, has outshined a basket of stocks that could be damaged by his administration by nearly 10% between early September and Wednesday, Reuters’ analysis found.

Robert Stirling Phipps, director at Per Stirling, claimed his portfolio’s biggest winners had been alternative energy companies. “Every time Biden’s poll numbers go up, those investments go up,” he said.

Bonds Attracting Hefty Inflows

Hopes that Democrats will pass a hefty stimulus package in case of a win have also helped US Treasuries break out of the range. Yields on benchmark 10-year Treasuries could rise up to 1.25% if Biden triumphs, compared to its current level of about 0.75%, according to NatWest’s Briggs.

“There’s a narrative in Treasuries that there’s a greater chance of a blue sweep, which means that a stimulus package will come January or February,” said Greg Staples, chief of fixed income at DWS Group.

Furthermore, bond funds recorded the second-largest inflows of $25.9 billion on a weekly basis, Bank of America (BofA) said, and the markets continue to price in a Democratic victory in the upcoming election.

“Blue wave election outcome (Democrats winning) has curiously flipped from consensus bear to bull catalyst in recent months,” the bank said.

Equity funds secured $4.4 billion, largely thanks to US equities, the bank added. Government and US Treasury bond funds registered inflows of $3.8 billion, the largest 14 weeks, in the week to October 7.

Summary

While it’s still early to come to conclusions regarding the upcoming presidential election in the United States, the recent performance of most markets indicates that the majority of Wall Street predicts Biden’s victory in the November 3 election.

About the Author


Headshot for author Mariliana Fotopoulou

Mariliana has an MSC in consumer analytics and business strategy. She has a special interest in fast-moving industries and big data.

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