Investors are acting like Democrats have a better chance of winning since the contentious Sept. 30 debate between President Donald Trump and former Vice President Joe Biden.
A positive coronavirus diagnosis for Trump may have sealed the deal. The odds of a Biden win in November have increased to 67% from a pre-debate reading of 55%, according to Raymond James, citing Bloomberg data.
The odds of Democrats taking the majority in the Senate rose to 66% from 55%, Raymond James added.
That could all mean a rotation out of big tech stocks into cyclical stocks and investments that benefit from the expected extra stimulus a Democrat-led government would bring, says Raymond James’ Tavis McCourt in a research note.
Hopes for a big stimulus package—the Democrats had proposed a $2.4 trillion bill—have faded in and out over the last few days in a series of mixed messages from the White House. Trump at first demanded Republicans walk away from the negotiating table. Then he directed a series of smaller, more targeted deals, including one for the ailing airline industry.
On Thursday, House Speaker Nancy Pelosi said a smaller airline deal wasn’t in the offering without broader aid measures.
Raymond James looked at how various traders and macro funds are positioning themselves. They appear to be making a notable shift to smaller cap stocks and cyclical industries.
A Democrat sweep could mean higher tax rates—Biden has vowed to rework Trump’s 2017 giant tax cut. That could take 5% to 8% off annual EPS on an index level, Raymond James said.
Material stimulus could raise longer-term rates, while short-term rates