NEW YORK – As U.S. stocks tumbled on Monday, hit by mounting coronavirus fears, analysts also flagged the possibility that investors haven’t been taking Bernie Sanders seriously enough, after the Vermont senator’s surprisingly broad support in the Nevada caucus Saturday.
Sectors with exposure to the progressive candidate, including managed care companies and the biggest banks, underperformed in early trading. Centene Corp. and UnitedHealth Group ended last week lower and were the biggest decliners in health care on Monday, with both sinking more than 7%. The KBW Bank Index shed as much as 3.5%, the most since August, and fell to the lowest since late October, with Bank of America Corp. and Citigroup Inc. briefly dropping more than 4%.
Here’s a sample of the latest commentary:
Cowen, Jaret Seiberg
“It appears to us that Sen. Bernie Sanders is not just solidifying his position but also could be a bigger threat to President Trump in the general election than the market appreciates,” Seiberg wrote in a note. “That would represent a major threat to financials and housing as Sanders has the most punitive agenda for these sectors given his plans for taxes and regulation.”
Beacon Policy Advisors
“In a politically polarized country where President Trump still remains underwater in his approval, the market is severely underestimating the chances of Sanders winning the presidency, and thus his potential impact on numerous companies and industries,” Beacon wrote in a note.
Vital Knowledge, Adam Crisafulli
“Sanders is very likely to become the Democratic nominee and he’s very likely going to lose in November,” Crisafulli wrote. However, he said that “investors should be altering their odds modestly as Bernie’s Nevada performance suggests he’ll be a more potent candidate than previously thought.”
Sanders, he added, “appeals to many of the same disaffected groups that helped push Trump over the edge in certain critical states, suggesting Sanders may be a more competitive Electoral College candidate than Hillary was.” And Trump becomes “eminently beatable if the stock market and/or economy falters in the months preceding the election and this could become a self-fulfilling prophecy (as Bernie’s prospects improve, the fear of a Sanders presidency will weigh on economic activity and the stock market, helping to further fuel his odds).”
Even so, Crisafulli said that “the economy is healthy, and this will matter more than anything.” Investors should keep in mind, he said, that Trump has a “major economic stimulus card in his back pocket in the form of existing tariffs – he could simply lift all the China trade restrictions should the market and/or economy falter further.”
AGF Investments, Greg Valliere
“The extent of Sanders’ win on Saturday in Nevada stunned party operatives,” Valliere wrote.
“It would take quite a wild card to defeat Trump, but there’s a serious one that is impossible to handicap.” That’s the coronavirus, he said, as the “U.S. is not invulnerable.”
“The risks on the coronavirus are clearly downside risks for everyone, including Trump,” he said. “Not even a very accommodative Federal Reserve could bail out Trump if Sanders somehow succeeds in blaming Republicans for being unprepared for a pandemic.”
Compass Point, Isaac Boltansky
Investors will be forced to reassess their assumptions that Trump would be heavily favored if Sanders “continues to gain both momentum and delegates,” Boltansky wrote. In particular, he flagged Sanders’ strength with Latino voters, which is a “promising signal.”
“A progressive White House would 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, a progressive president may be good for 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 said.
KBW, Brian Gardner
“Bernie Sanders’ surprising big win this past weekend in Nevada suggests that he might be in a stronger position to win the Democratic nomination than previously believed, and since Super Tuesday follows South Carolina so closely, Mr. Sanders might build unstoppable momentum,” Gardner wrote.
At the same time, he said that the reason markets hadn’t so far reacted to Sanders’ surge was that he’s seen as unlikely to win and that he could “open the door for Republicans to retake the House and keep the Senate.” KBW thinks some centrist House Democrats who were elected in 2018 in swing districts may be in jeopardy, and a Sanders candidacy may make it tough for Democratic Senate candidates in Arizona, Georgia, and North Carolina. “The combination of Mr. Sanders’ history of embracing socialism and Mr. Trump’s strong approval ratings on the economy make Sanders’ chances of winning in November weak,” he said.
Jefferies, Jared Holz
Jefferies health care strategist Holz recommended taking profits in healthcare services after Sanders’ victory in Nevada.
“The prudent move is reducing exposure” in areas like managed care, which are most exposed to ideas like Sanders’ Medicare for All push, Holz wrote. The group, which includes UnitedHealth Group, Anthem Inc., Humana Inc. and Centene, has rallied from October lows, but heightened concern around universal healthcare agendas argue in favor of paring back positions in the sector.
Goldman Sachs, Asad Haider
Health-care stocks “could now be entering a noisier period” after Sanders’ spike in popularity following last week’s Democratic debate, Haider said in a note late Friday. Sector investors are now focused on the extent to which the Vermont senator can hold the widening gap against other candidates on Super Tuesday, he said.
Nomura Instinet, Matthew Howlett
Sanders winning the Democratic nomination would boost the chances the Trump administration will end the conservatorship of Fannie Mae and Freddie Mac ahead of the November election, Howlett wrote earlier.
He recommends clients buy Fannie Mae and Freddie Mac common stock ahead of the Democratic convention. “It may sound counterintuitive, but we believe Bernie Sanders (who is coming off a strong showing Saturday and continues to increase his lead in the polls), as the Democratic nominee for president greatly increases the chances the GSEs will be released from conservatorship prior to any potential change at the White House in Jan. 2021,” Howlett said.
A Sanders nomination would probably “motivate the current administration to act more with a sense of urgency,” and to finish tasks needed to prevent a new administration from reversing their moves, he said.
Fannie common stock fell as much as 6.7%, the most since mid-December; Freddie slid as much as 5.1%, also the most since mid-December.
(With assistance from Bailey Lipschultz and Cristin Flanagan.)
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