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The stock market is sending signals that a Biden-led blue wave is getting less certain, says one Wall Street strategist

The stock market is sending signals that a Biden-led blue wave is getting less certain, says one Wall Street strategist

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  • While the polls suggest a blue wave victory is in reach for Democrats this November, the stock market isn’t so sure, according to a note from Evercore ISI.
  • Wall Street strategists have been forecasting that a blue wave would likely be positive for stocks on hopes of a large stimulus deal shortly after the election, which would help spur a surge in value and cyclical stocks.
  • But this week’s rotation out of value and into tech suggests that chances of a blue wave in November are less likely, according to the note.
  • Visit Business Insider’s homepage for more stories.

Wall Street is increasingly expecting a blue wave victory for Democrats this November after the polls close, which would likely lead to the reflation trade: a surge in cyclical and value stocks at the expense of technology and growth stocks.

But recent trading activity in the stock market suggests odds of a blue wave are less likely, according to a Tuesday note from Evercore ISI. 

Specifically, this week’s rotation out of small cap and value and into large cap and growth could be chalked up to declining odds of a Democratic sweep, according to the note.

The firm pointed to the October surprise in North Carolina’s Senate race between Republican Thom Tillis and Democrat Cal Cunningham as evidence for declining chances of Democrats overtaking the Senate.

“The Democratic ‘dream fiscal program’ odds are lower,” Evercore said as explanation for what is driving the rotation back into tech.

Read more: Jeff James has crushed the market this year thanks to a stock pick that’s soared 1,155%. He shares another bet he expects to deliver similar returns – and lays out 3 additional opportunities in tech.

The firm did concede that other factors could be moving tech stocks, including excitement

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Column: How the Market Learned to Stop Worrying and Love the Blue Wave – Mike Dolan | Investing News

Column: How the Market Learned to Stop Worrying and Love the Blue Wave – Mike Dolan | Investing News

LONDON (Reuters) – Just about the only market consensus all year on next month’s U.S. election was that it would be volatile around the vote – but even that’s turning upside down three weeks before polling.

A narrow and disputed election result has been one of the main investor fears for months. Bank of America’s October global fund manager survey still had 60% of its respondents expecting the result to be contested – and three quarters said it was the outcome likely to cause most market disruption.

But with Democratic challenger Joe Biden’s consistent opinion poll lead since May widening into election day, bookmakers’ odds on a clearcut outcome and Democrat clean sweep of the White House and both Houses of Congress are narrowing.

Investment banks and asset managers, who have for decades argued markets would baulk at tax and spend policies and prefer congressional gridlock to curb any excesses, are now positively embracing the likelihood of a clean sweep for a Democratic Party expected to spend big and also raise wealth and corporate taxes.

With less than a month to go, Wall Street stocks are racing to record highs again and long-elevated implied volatilities of the S&P500 benchmark – the VIX ‘fear gauge’ and its November and December futures contracts – are draining to 6-week lows.

Opinion polls now put Biden’s lead over incumbent Donald Trump in double digits, almost twice September levels. Bookmakers in Europe put Trump as the 7/4 outsider, his longest odds of the campaign, and the Democrats are now favorite to take to take key swing states – Arizona, Florida, Michigan, North Carolina, Pennsylvania and Wisconsin.

Online market PredictIt puts the chance of a Biden White House as high as 66% and a Democrat clean sweep at 59%.

Far from running scared, the investment world

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Why the market narrative on a November ‘blue wave’ flipped in just 2 weeks and what it means for stocks, according to UBS

Why the market narrative on a November ‘blue wave’ flipped in just 2 weeks and what it means for stocks, according to UBS



Joe Biden wearing a suit and tie: Joe Biden, the Democratic presidential nominee. Getty


© Getty
Joe Biden, the Democratic presidential nominee. Getty

  • The market narrative on what a “blue wave” in November could mean for stocks has flipped over the past two weeks, UBS said in a note on Monday.
  • The prevailing market narrative over the past few months that election victories for Democrats would hurt stocks because of the potential for higher taxes is now dead, according to UBS.
  • Instead, expect stocks to move higher if there’s a blue wave, and don’t be surprised if investors are disappointed if it doesn’t happen, UBS said.
  • Visit Business Insider’s homepage for more stories.

Throughout 2020, the consensus view has been that a Joe Biden victory and a “blue wave” in November would be bad for the stock market because of the potential for higher corporate taxes and more regulation.

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But that market narrative has been flipped on its head in the past two weeks, UBS said in a note on Monday.

Now investors expect that a Biden victory and Democratic sweep in Congress could be a catalyst for a reflation trade, in which cyclical and value stocks trade higher and the US dollar weakens, further helping US stock prices.

The impetus for a change of heart among investors is threefold, according to UBS:

  1. “The inability to pass a major fiscal package prior to the election means that it’s increasingly likely to be the Democrats’ top priority after a Blue Wave outcome.”
  2. Higher taxes will be a 2022 problem for investors, not a 2021 problem.
  3. “Biden’s widening lead in the polls and prediction markets, and along with it the likelihood of a Blue Wave, is reducing election uncertainty,” UBS said, adding that a delayed or contested election would be more unsettling to investors than a Democratic sweep of the White House and Congress.
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Here’s why the market narrative on a November blue wave flipped in just 2 weeks, and what it now means for stocks, according to UBS

Here’s why the market narrative on a November blue wave flipped in just 2 weeks, and what it now means for stocks, according to UBS

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  • The market narrative on what a potential November blue wave could mean for stocks has flipped over the past two weeks, UBS said in a note on Monday.
  • The prevailing market narrative over the past few months that a blue wave election outcome would hurt stocks due to higher taxes is now dead, according to UBS.
  • Instead, expect stocks to move higher if there is a blue wave this November, and don’t be surprised for the potential of investors being disappointed if a blue wave doesn’t happen, UBS said.
  • Visit Business Insider’s homepage for more stories.

Throughout 2020, the consensus view has been that a Joe Biden victory, and a potential “blue wave” in November, would be bad for the stock market because of the potential for higher corporate taxes and more regulation.

But that market narrative has been flipped on its head in the past two weeks, UBS said in a note on Monday.

Now, investors expect a Biden victory and Democratic sweep of Congress this November to serve as a the catalyst for a reflation trade, in which cyclical and value stocks trade higher, and the US dollar weakens, further helping US stock prices.

The impetus for a change of heart among investors regarding a blue wave and its impact on stocks is three-fold, according to UBS:

1. “The inability to pass a major fiscal package prior to the election means that it’s increasingly likely to be the Democrats’ top priority after a Blue Wave outcome,” UBS said.

2. Higher taxes will be a 2022 problem for investors, not a 2021 problem, according to UBS.

3. “Biden’s widening lead in the polls and prediction markets, and along with it the likelihood of a Blue Wave, is reducing election uncertainty,” UBS said, adding that a delayed or

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The stock market won’t see the bullish outcome it’s expecting from a Biden win unless there’s a full blue wave, a JPMorgan stock strategist says

The stock market won’t see the bullish outcome it’s expecting from a Biden win unless there’s a full blue wave, a JPMorgan stock strategist says

NYSE Trader
Traders look on after trading was halted on the floor of the New York Stock Exchange (NYSE) in New York, U.S., March 18, 2020


  • JPMorgan Private Bank’s Monica DiCenso told Bloomberg on Friday that the stock market won’t see the bullish outcome it’s expecting from a Biden win unless there’s a blue wave victory. 
  • The head of US equity strategy said that it will be difficult for Biden to pass a large stimulus bill without Democratic control of the Senate. 
  • The stimulus would also offset higher corporate taxes that are likely under a Democratic administration, she said. 

JPMorgan Private Bank’s head of US equity strategy told Bloomberg on Friday that the stock market won’t see the bullish outcome it’s expecting from a Joe Biden victory unless there’s a full blue wave outcome.

“It does appear increasingly likely that we see a blue wave and I think that is what the market is pricing in right now when you see equities continue to move,” Monica DiCenso said.

The strategist explained that it will be much harder for Biden to pass a large stimulus bill without Democratic control of the Senate, and said: “I really do think you probably need the blue wave for the real bullish outcome that many people are talking about to come to fruition.” 

DiCenso added that the stimulus, combined with continued low interest rates, will be the “perfect backdrop for equities over the near to intermediate term.”

While some investors are nervous that a blue wave will be negative for stocks because Biden’s corporate tax hikes will crush company earnings, DiCenso said the stimulus spending will offset higher taxes.

Read more: Fund manager Brandon Nelson is tripling his benchmark in 2020 with ‘less-discovered’ companies that become big winners. Here are 3 themes and

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