Donald Trump wasted no time in highlighting Democrats’ big debacle in the Iowa Caucus. And interestingly, markets wasted no time in jumping on news of the issues in Iowa. In particular, bank stocks jumped across the board (from JPM to BAC and beyond) on news of the reporting issue in Iowa. Investors think a Trump re-election will be better for markets, and bank stocks are particularly sensitive as the current president is viewed as much more favorable to financial companies.
FINSUM: If Bernie ends up winning the Caucus, expect markets to take a little hit, as he (or Warren) will be the exact opposite of “good” for bank stocks.
Whether you are a Democrat or a Republican, the ongoing “reporting issue” with the Iowa Caucus is highly embarrassing. Democrats were unable to report a winner after voting closed last night because of irregularities in reporting. The party’s new app, which voters and reporting areas used, did not fail. Nonetheless, there were inconsistencies and reporting issues (e.g. phone lines were down). Candidates were unable to comment on their success or failure, save Pete Buttigieg, who declared victory.
FINSUM: Trump jumped all over this, as one would expect. It does not look good for Democratic competence to have a big screw-up on their first trip out of the gate in 2020.
Tesla’s stock has been rising almost as fast as Elon Musk’s rocket ship ambitions. Not only is the stock up almost 100% this year already (!), but shares rose by a shocking 20% on Monday alone. Why? The lack of a concrete reason is what makes the move alarming. There was some relatively minor news from a supplier about battery prices, but otherwise nothing. That is making many traders expect that a short squeeze has hold of the market, making gains artificial and moving the stock dangerously away from its moving averages.
FINSUM: Tesla shares seem to be showing a high degree of irrational exuberance right now. Any bad news could cause a huge drop.
More focus has been put on what Elizabeth Warren has said about wealth management, but the reality is that Bernie seems much likelier to win the bid, and his opinions are more poorly understood. With the Iowa caucus starting today, it seems the right time to start thinking about it. Bernie seems likely to take a very hard line on wealth management, likely replacing all the top management of the relevant agencies and taking a new line on Reg BI and the Fiduciary Rule. It is hard to imagine he would be comfortable with existing regulation and given how the Democratic party views the role of agency power, it seems like big changes might be made.
FINSUM: Given Bernie’s views, the changes to the industry might not just be limited to regulations, but also to mergers and acquisitions of wealth managers, and of course, huge tax changes.
With the big fall on Friday, a new and important reality has hit the stock market—indexes are actually down on the year. This is eye-opening because stocks came into the year with huge momentum from 2019’s big gains. However, between earnings and the Wuhan virus, stocks have taken a big hit. Adding to these fears is the fact that China just had a disastrous 8% loss today and there are escalating worries over how this virus might impact global growth.
FINSUM: Our own view is that the damage this virus has done to stocks is transitory and buy-the-dip might still be the best strategy.