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Joe Biden Recaptures the Lead

March 2020 
By Nanette Abuhoff Jacobson and Daniel Cook, CFA

A look at how Super Tuesday results and the changing political landscape may impact markets in the coming months.

Managing Director and Multi-Asset Strategist at Wellington Management Company LLP and Global Investment Strategist for Hartford Funds.
Daniel Cook, CFA
Multi-Asset Analyst, Wellington Management


Former Vice President Joe Biden capitalized on a strong showing in the South Carolina primary in February and a slew of key endorsements to catapult into the lead among the remaining Democratic presidential candidates on Super Tuesday.

Moderate Democrats finally coalesced around Mr. Biden, and importantly, all other centrist candidates have now endorsed him, pledging support and resources for his campaign. With a solid second-place showing, largely driven by a likely win in California, Vermont senator and progressive candidate Bernie Sanders remains a contender. Despite a close delegate count separating the candidates and many uncertainties ahead, I view Mr. Biden as the favorite to win the Democratic nomination, which would likely erase market fears of Mr. Sanders winning the general election and implementing a political agenda that many view as socialist.

I believe Mr. Biden has an edge over Mr. Sanders because most of the states that have yet to hold primaries lean conservative (Figure 1). Of the 33 states remaining, Mr. Sanders won just 14 during the 2016 primaries when he ran against Hillary Clinton. Those 14 states account for just 26.7% of outstanding delegates.

 

Figure 1

Remaining Primaries Favor Biden

Delegates Remaining in Democratic Primary by State, Shaded to Represent 2016 Primary Results

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Each state that is still scheduled to vote in the 2020 Democratic primary represents a slice of the pie chart that is proportional to how many delegates are currently allocated to that state. Sources: Politico, Wellington Management

 

Notably, Mr. Biden also performed well on Super Tuesday among voter demographics that may prove key during the general election, particularly moderate Democrats, college-educated women, and African Americans. I expect his current momentum, burgeoning endorsements, wide voter appeal, and a favorable electoral map to lead him to the top of the Democratic ticket.

All that said, however, markets can’t write Mr. Sanders off just yet. He leads a powerful grassroots movement, champions several causes popular with liberal Democrats, and has an impressive ability to turn out his base at the polls. The Sanders campaign is also well-funded to compete in every remaining primary leading up to the Democratic national convention in July. Finally, as the frontrunner, Mr. Biden will have to survive a constant onslaught of criticism regarding his decades-long voting record and his son’s role on the board of a Ukrainian gas company. He will face attacks from the Sanders camp as well as President Trump's administration.


Investment Implications 

  • Consider adding to risk assets.1 A reduced chance of a self-proclaimed democratic socialist in office could help buoy markets. Once fears related to the coronavirus and potential economic fallout subside, which admittedly could take months, I think risk assets could rebound. It may be a good time to consider building positions in segments such as international and emerging-market equities, where valuations are currently attractive. Within equities, healthcare could benefit from the removal of Medicare-for-All risks.

  • Consider maintaining exposure to high-quality assets. While more market-friendly than Mr. Sanders, if Mr. Biden does go on to win the White House, he is likely to increase corporate taxes and entitlement spending, neither of which are favorable for equities.

 



1 Risk assets (such as equities, commodities, high-yield bonds, real estate, and currencies) have a significant degree of price volatility.

Important Risks: Investing involves risk, including the possible loss of principal. • Foreign investments may be more volatile and less liquid than US investments and are subject to the risk of currency fluctuations and adverse political and economic developments. These risks may be greater for investments in emerging markets. • Fixed income security risks include credit, liquidity, call, duration, and interest-rate risk. As interest rates rise, bond prices generally fall. • Investments in high-yield ("junk") bonds involve greater risk of price volatility, illiquidity, and default than higher-rated debt securities.  • Investments in the commodities market and the natural-resource industry may increase liquidity risk, volatility and risk of loss if adverse developments occur. Real estate is sensitive to changes in interest rates and general and local economic conditions and developments.

The views expressed here are those of the authors. They should not be construed as investment advice. They are based on available information and are subject to change without notice. Portfolio positioning is at the discretion of the individual portfolio management teams; individual portfolio management teams and different fund sub-advisers may hold different views and may make different investment decisions for different clients or portfolios. This material and/or its contents are current as of the time of writing and may not be reproduced or distributed in whole or in part, for any purpose, without the express written consent of Wellington Management or Hartford Funds.

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