The first round of the Democratic debates a few weeks ago was a little disappointing from an entertainment perspective. All the candidates seemed loathe to argue with one another, so the overall debate didn’t have the electric atmosphere that many of the candidates seem to have outside the debate venue. However, tonight and tomorrow should be different, as Joe Biden is likely to be under heavy attack as the frontrunner. The field of candidates is thinning and the stakes are much higher this time, which means there are likely to be more aggressive tactics. Biden himself has said he won’t be so friendly this time around.
FINSUM: If we had to make a call right now, we would say that Trump is likely to win re-reelection. Our reasoning is simple—the candidate most likely to win the Democratic bid is probably the one most tolerable to Republicans (i.e. Biden), which means the average American voter is more skewed to the right than to the left.
Bernie Sanders has just made his big pitch to America’s Millennial generation. The candidate has vowed to eliminate all student loan debt for both undergraduates and grad students, and make all future tuition free. To fund the $1.5 tn write-off, he is planning a new tax on stock, bond, and financial derivatives trades which he forecasts would bring in $2.4 tn over a decade. One of the things that differentiates this plan from others, like Warren’s, is that it will eliminate all debt, not just that of the lowest income borrowers.
FINSUM: This is an interesting plan from a strategic perspective because it not only appeals to the left and the young, but also the richest of the young because it would eliminate all debt regardless of income. This point has brought criticism from some Democrats.
Yield curves are widely known to be the best indicator of forthcoming recessions, hence why the market is spooked. However, a lesser known fact is that they are also good indicators of presidential elections. Looking historically, whenever the yield curve is inverted at the time on an election, the incumbent loses. This occurred in 1980 in Reagan’s victory, as well as in the 2008 election of Obama. Both times, the yield curves were inverted and the economy in recession. That said, flat yield curves don’t seem to have much effect at all and hold little advantage for either party.
FINSUM: Given that recessions usually take 12 to 18 months to start once the curve inverts, it is entirely possible that one could begin just before the 2020 election.
Financial advisors are a conservative bunch, so we know that there has been some very anxious feelings over the last couple of weeks as would-be Democrat presidents have announced their intentions for big tax hikes. How about 70% top tax rates and major wealth taxes? Some, like Bernie Sanders and Chuck Schumer, have also recently posed putting restrictions on buybacks. With all this in mind, here is a list of stocks that would be most in trouble from the Democrat plans that are currently on the table. According to Barron’s, the most at risk are Citigroup, Whirlpool, American Airlines, Union Pacific, and Boeing, but Walmart and Harley-Davidson could also be exposed.
FINSUM: This list was rather simply done—the companies that had reduced headcount the most and also bought back shares. However, as we move towards the election, it is time to start considering the risks to different stocks.
The market had a relief rally right after the election results came in. Yesterday wasn’t so good. The big question on everyone’s mind is where the market is headed from here. Looking historically, the current political arrangement (split Congress, Republican presidency) is the worst for markets. The S&P 500 has had the lowest returns in the current political set up, though it has only occurred four times since 1900.
FINSUM: The market’s outlook for 2019 appears fairly bleak to flat for us. The main reason why is that there won’t be another major tax package, and the great earnings of this year will make 2019 comparisons look weak. Growth is also likely to slow.