A Warren Win Wouldn’t Necessarily Bring a Bear Market, Says Bernstein

Similar downbeat predictions about Obama and Trump came to naught, strategists point out.

Would a President Elizabeth Warren really spell the stock market’s doom? To hear some prominent Wall Streeters tell it, her left-leaning ways would send equities plummeting by double-digits.

Aside from the fact that we’ve heard such dire pronouncements before—in relation to Barack Obama and Donald Trump, for instance—Bernstein Research is skeptical. “Would Warren crush the equity market?” asked Philipp Carlsson-Szlezak, Bernstein’s chief US economist, and Paul Swartz, its macro strategist, in a research note. “Not so fast.”

Should the economy continue its present growth course, the notion that the Democratic senator from Massachusetts could single-handedly induce a bear market is a stretch, they reasoned. For political news to make the market falter, they argued, would constitute a “very high bar.”

Many of the American people simply don’t focus on a presidential contest for much of the election cycle, they pointed out—and the same goes for investors. “There is a powerful pattern of markets ignoring presidential contests for most of the year,” the Bernstein strategists wrote. They then start paying attention during the last six weeks of the race.

The Bernstein researchers noted that there were only two examples of the market slumping in a presidential election year without a recession: in 1940, when the Nazis were overrunning Europe, and in 2000, as the air was going out of the dot-com boom. In those cases, the market was worried about the prospect of the US entering World War II and about the tech-fueled economy coming to an end.

“While Warren’s policy agenda is controversial,” they wrote, “we’re reluctant to equate it with such secular shocks—even if her policy proposals in such areas as health care, energy, and taxation represent obvious obstacles for investors.”

Warren’s proposals, like Medicare for All, elicit gloomy views from the likes of hedge fund manager Paul Tudor Jones and fellow hedger Leon Cooperman. Jones has said the S&P 500 would drop a bear-market-inducting 25% if Warren won. Cooperman agreed on the 25% dip. Their views are reminiscent of past such fears. Wall Street was similarly leery of Obama and Trump victories but proved to be dead wrong when stocks soared under both presidents. Indeed, the S&P 500 slid 5% right after Trump’s 2016 win, but then headed upward.

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