Investors' bets on a Democratic sweep grow

With the president consistently down in national opinion polls - and following last week’s raucous presidential debate and coronavirus outbreak - Wall Street is seeing blue. Investors now are increasingly betting on a Joe Biden victory and a possible Democratic sweep on Election Day.

National Securities chief market strategist Art Hogan:

“What the market has really shifted to, hey, let’s look at the polling of the presidential election and let’s assume that the polling is correct - and that’s not always the case - but let’s say the Democrats take both the White House and the Senate.”

Last week’s televised face-off widened Biden’s lead over President Donald Trump in several national polls, which has fueled moves in assets that are sensitive to a decisive Democratic win.

Shares of clean energy companies which are expected to prosper under a Biden administration have climbed sharply since the debate. Reuters looked at a basket of stocks tracked by JPMorgan Chase that includes green tech and trade-linked companies and another basket that could be hurt by a Biden presidency. The analysis found that the basket that would likely benefit from Democratic policies outperformed the other basket between early September and Wednesday by about 10%.

And in the government bond market, yields have climbed as bond investors anticipate the Democrats would pass a broad stimulus plan.

RiverFront Investment Group co-chief investment officer Kevin Nicholson says talk of a big relief package is also driving equities higher.

“Markets are moving up because they believe that if you get a Democratic sweep that there’s going to be large scale stimulus.”

And in the currency markets, some prices for implied volatility that hedge against market swings are falling, signaling that options investors are increasingly betting that Biden will decisively beat Trump.

But a Biden victory is far from a foregone conclusion, and some investors are hedging their bets in stock options, which continue to anticipate market swings into the end of the year.

Video Transcript

- With the president consistently down in national opinion polls and following last week's raucous presidential debate and Coronavirus outbreak, Wall Street is seeing blue. Investors now are increasingly betting on a Joe Biden victory and a possible Democratic sweep on election day. National Security's Chief Market Strategist Art Hogan.

ART HOGAN: I think what the market really has shifted to is, hey, let's look at the polling of the presidential election. And let's assume that the polling is correct-- and that's not always the case, but let's say that the Democrats take both the White House and the Senate.

- Last week's televised face-off widened Biden's lead over President Donald Trump in several national opinion polls, which has fueled moves and assets that are sensitive to a decisive Democratic win. Shares of clean energy companies, which are expected to prosper under a Biden administration, have climbed sharply since the debate. Reuters looked at a basket of stocks tracked by JP Morgan that includes green tech and trade link companies and another basket that could be hurt by a Biden presidency.

The analysis found that the basket that would likely benefit from Democratic policies outperformed the other basket between early September and Wednesday by about 10%. And in the government bond market, yields have climbed as bond investors anticipate the Democrats would pass a broad stimulus plan. RiverFront Investment Group co-chief investment officer Kevin Nicholson says talk of a big relief package is also driving equities higher.

KEVIN NICHOLSON: Markets are moving up because they believe that if you get Democrats-- a Democratic sweep, that there's going to be large-scale stimulus.

- And in the currency markets, some prices for implied volatility that hedge against market swings are falling, signaling that options investors are increasingly betting that Biden will decisively beat Trump. But a Biden victory is far from a foregone conclusion, and some investors are hedging their bets in stock options, which continue to anticipate market swings into the end of the year.