Wall Street Week Ahead: Trump-Biden debate could spark
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[September 26, 2020] By
(Reuters) - Some U.S. stocks could face
more volatility next week as President Donald Trump and rival Joe Biden
face off in their first debate ahead of a November election that betting
services currently view as almost a coin flip.
A strong performance in Tuesday's debate by Biden, who currently has a
modest lead in betting odds and polls, might boost stocks related to
global trade and renewable energy, while a perceived debate victory by
Trump could benefit fossil fuel and defense companies.
The first of three scheduled debates comes at a fraught moment on Wall
The S&P 500 has tumbled 10% from record highs in recent weeks as
investors worry about a prolonged recovery from the coronavirus and
uncertainty related to the Nov. 3 vote, including the possibility of a
delay in announcing a winner.
If one candidate emerges stronger on Tuesday, "the debate could be an
individual stock and sector play," said Jack Ablin, Chief Investment
Officer at Cresset Wealth Advisors.
"For example, I think life under Biden would be a lot simpler for Apple
than life under Trump," Ablin said, referring to Trump's trade conflict
Individual stocks and other assets have been susceptible to market moves
as a result of debates, even as broader markets have generally shrugged
The Sept. 26, 2016 debate between Trump and Hillary Clinton, for
example, sparked a 2% surge in the Mexican peso, as well as moves in
oil, gold and Treasuries, according to a University of Michigan and
Dartmouth College study.
Many investors view Biden as more likely to raise taxes, and see a
second term for Trump, who favors deregulation, as better for the
overall stock market. At the same time, a Trump win could spark concerns
over ramped up tensions between Washington and Beijing.
Stocks to watch following presidential debates
Potential winners from a strong Biden performance:
-Tyler Technologies (Government Technology)
-HMS Holdings (Healthcare Innovation)
-Molina Healthcare (Medicare/Medicaid)
-Brookfield Renewable Partners (Clean Energy)
-Kansas City Southern (Global Trade)
Source: Global Policy Index
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Yard signs supporting U.S. President Donald Trump and Democratic
U.S. presidential nominee and former Vice President Joe Biden are
seen outside of an early voting site at the Fairfax County
Government Center in Fairfax, Virginia, U.S., September 18, 2020.
REUTERS/Al Drago/File Photo
Potential winners from a strong Trump performance:
-Occidental Petroleum (US Energy)
-Enterprise Products Partners (US Energy)
-Lockheed Martin (Defense)
-Turning Point Brands (Tobacco)
-Enova International (Financial Deregulation)
Source: Global Policy Index
With expectations of a delayed vote count, the options market shows investors
are bracing for volatility in November and December. Trump declined on Wednesday
to commit to a peaceful transfer of power if he loses, and said he expected the
election battle to end up before the Supreme Court.
Adding to political uncertainty, betting websites are offering odds giving Biden
a 53% chance of beating Trump, down from as much as 61% in early August,
according to RealClearPolitics.
A Biden win could boost the S&P 500 by about 1% the following day, while a Trump
re-election would push the index down about 4%, according to an analysis by
Cornerstone Macro based on a statistical comparison of recent asset prices and
election betting odds.
"A possible interpretation of this result is that markets have increasingly
priced in a Biden win and view the alternative as posing some risks, possibly
stemming from potential escalating trade tensions or similar factors,"
Cornerstone Marco wrote.
Gullane Capital Partners LLC, a hedge fund in Memphis, Tennessee, is focusing on
each presidential candidate's likely effect on specific stocks it owns, rather
than what each candidate might mean for Wall Street as a whole, said Managing
Partner Trip Miller.
"Biden is good for some of our businesses, like solar, and Trump is better for
some of our other businesses that benefit from lighter regulation," Miller said.
UBS in a report this week predicted that a second term for Trump would have
little effect on healthcare. On the other hand, a Biden victory would lead to
only modest changes, rather than a major overhaul of health insurance, even if
Democrats took control of the Senate.
"We believe that the rhetoric on changes to healthcare policy exceeds the
reality of what can be accomplished," UBS analysts wrote.
(Reporting by Noel Randewich; Editing by Ira Iosebashvili and Sam Holmes)
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