A Biden win removes some major risks for US markets
US markets are near session highs with most indices up 3% now. That's a good day but it really just wipes out the decline from yesterday's Fed-inspired imbroglio.
Obviously the ebb and flow of coronavirus is dominant but it will be a memory in four years, while the winner of November's US election will still be in office.
Joe Biden had a huge win yesterday after scoring last-minute endorsements from Buttigieg and Klobuchar and parlaying that to wins in all the closely-contested states. In four days, his odds on PredictIt of winning the nomination went to 70% from 27%, inverting with Sanders.
A few days ago there was a very-real possibility of the pandemic paving the way to a Bernie Sanders nomination and Presidency. Now that's increasingly remote -- even moreso with Bloomberg dropping out and supporting Biden.
With Biden, the stakes are much lower for the November election. You can see it in the 12% rally in United Health shares today. The healthcare industry isn't going to be blown up and the energy industry will be able to continue drilling.
The economic playbook for whatever ails the US will be a familiar one. In a Biden presidency, there won't be any landmark changes in US policy.
Is all that only worth a 3% rally in US equities?
I would argue it's worth much more. Of course, Sanders' campaign isn't dead and political fortunes can change quickly so it's not cut-and-dry; but a Trump-Biden election just isn't the market-moving event that it would have been if it was Trump-Sanders.
So why hasn't the market rallied more? Well, it could be coming. Pushing the market higher isn't often a one-day affair. The market could be overly focused on coronavirus at the moment. At the same time, it doesn't matter who the president is in a pandemic recession -- the market is going lower.
So I'm sympathetic with both sides and I don't see an urgent reason to make any kind of trade, but I think it's wise to recognize what an enormous shift happened yesterday in US politics. It will have a lasting effect.
