Brace for the Bernie Sanders selloff

Rick Newman
Senior Columnist

Bernie Sanders supporters are pumped for the Democratic primary elections, which are set to begin just as the Vermont senator seems to be cresting in the polls.

Investors are on the other side of that trade.

Financial markets are sanguine, for now, about the 2020 presidential election, with no signs of worry about President Donald Trump losing his re-election bid and a new president imposing new rules. But if Sanders has a strong showing in the Iowa caucuses on Feb. 3, expect markets to adjust — downward.

“If you get a Sanders win in Iowa you’d expect markets to be somewhat unsettled,” Seema Shah, chief strategist for Principal Global Investors, told Yahoo Finance on Jan. 28. “At the moment the market is pricing either the Trump administration or a Democrat, a market-friendly one.”

Attendees hold signs during a campaign rally held by Democratic 2020 U.S. presidential candidate and U.S. Senator Bernie Sanders (I-VT) in Sioux City, Iowa, U.S., January 26, 2020. REUTERS/Ivan Alvarado

If Sanders does win Iowa, it shouldn’t be a surprise. Polling site fivethirtyeight gives Sanders a slight edge over former vice president Joe Biden in the Hawkeye state, with former South Bend, Indiana Mayor Pete Buttigieg third and Massachusetts Senator Elizabeth Warren fourth. In national polls, Sanders has risen more than any of the other top candidates during the last few weeks, putting him about 5 points behind leader Biden. Sanders is also the Democratic fundraising leader, with plenty of money for the early primaries and more if needed from his legions of small donors.

Sanders is still an underdog to win the Democratic nomination, and if it looks like he has a chance, that party’s traditionalists may seek a way to torpedo his campaign. Sanders is the most radical candidate running as a Democrat, with a litany of plans to hike taxes on the wealthy, shackle corporations, eliminate private insurers and build an elaborate welfare state. Many critics brand Sanders a socialist, one reason he may have the weakest chance among Democrats of beating Trump in the general election.

A Sanders presidency would hold major risks for the health care, financial, energy and automotive sectors, to name just a few. Sanders wants to nationalize health care, putting for-profit insurance companies and hospitals out of business. He supports the Green New Deal, which would involve massive government intervention in the energy and automotive sectors. Sanders would impose a tax on many financial transactions and raise corporate taxes across the board.

It’s very unlikely Sanders would be able to do those things, even if he won, because Republicans in Congress wouldn’t help at all and many Democrats would resist Sanders’ agenda, too. So while a strong start for Sanders in the Democratic primaries might jolt markets, the worst would probably never come to pass. But investors may have not thought this all through yet. If there’s a Sanders win any time soon, they will, pronto.

Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. Confidential tip line: Encrypted communication available. Click here to get Rick’s stories by email.

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