Democratic debate: 5 things investors and Trump must watch out for

Brian Sozzi

Money managers are always lightening quick to say that politics don’t play a big role in their investment decision-making process. And when it comes to presidential election season politics, those that build portfolios for a living often go through even greater lengths to explain they are investing for the next five or 10 years — and it doesn’t really matter who occupies the White House.

“For us, instead of trying to determine the outcome of the political situation we stick to process. We have plans in place if this happens, then we will do this or visa versa. So rather than being reactive we try to stick to our process in terms of portfolio management,” explained Riverfront Investment Group Chief Risk Officer Rebecca Felton on Yahoo Finance when asked how she was factoring in Tuesday’s Democratic debate into her investment decisions.

While that disciplined approach makes sense for some investors with long time horizons, for traders and those more active in markets the prime-time spectacle that will be today’s Democratic presidential debate is must watch TV.

For instance, another strong showing by Democratic presidential hopeful — and current leader per many polls — Senator Elizabeth Warren could be bad news for stocks (think about her attack on Facebook and corporate profits) given her anti-growth messages made on the campaign trail. If former Vice President Joe Biden brings his A-game for a change, it could be favorable for stocks short-term as it may pressure the surging Warren in the polls.

Biden is seen by many on Wall Street as a more market-friendly presidential candidate.

Democratic presidential candidates former Vice President Joe Biden, left, and Sen. Elizabeth Warren, D-Mass., shake hands Thursday, Sept. 12, 2019, after a Democratic presidential primary debate hosted by ABC at Texas Southern University in Houston. (AP Photo/David J. Phillip)

The stats show that investors would be wise to at least give a damn about the Democratic presidential debates, the eventual presidential debates and politics more broadly. It’s all very intertwined, despite money managers advising otherwise.

In a new study from Rice University, researchers found the outcome of presidential elections at the county level from 1992 to 2016 were directly influenced by stock market performance. The researchers unearthed this gem of a stat: a one-percentage-point higher dividend income ratio is associated with an increase in incumbent vote share by 2.4 percentage points.

So, pay attention to the fierce back and forth on stage Tuesday night. Actually, if you are an active investor pay careful attention to the five items below shared by Compass Point research director Isaac Boltansky to Yahoo Finance:

  1. Investors should be intently focused on Warren’s performance given her campaign’s recent move higher in the polls (see above explanation).

  2. Despite his progressive ideas, billionaire activist Tom Steyer will very likely face coordinated attacks due to his wealth. Those attacks could keep billionaire and former New York City Mayor Michael Bloomberg out of the race for good. Bloomberg is rumored to not have given up a run for president — if he does run, it would add a generally business-friendly voice to the race.

  3. How Senator Bernie Sanders performs following his recent heart attack is important. A poor showing could remove a described socialist from the race, which is pro-stock market.

  4. How candidates address the impeachment inquiry into President Trump is also key. Tough talk could be met with concern among investors as it would heighten risk around the Trump presidency.

  5. Trump’s treatment of the Ukraine issue will be a central topic of discussion during the debate. That means Biden — the aforementioned centrist Democratic candidate — could get sucked into an unwelcome exchange that hurts his chances.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow him on Twitter @BrianSozzi

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