With the final stretch of the election upon us, it’s still nearly impossible to guess how the stock market will react to next week’s vote. One estimate from JPMorgan Chase & Co.’s chief equity strategist puts U.S. stocks in for a double-digit advance if Donald Trump keeps his office.
A victory for the Republican candidate could push the S&P 500 to as high as 3,900 at year-end under the most optimistic case laid out by Dubravko Lakos-Bujas, the bank’s chief U.S. equity strategist. The figure, some 300 points above his base-case target for year-end, implies a 12.5% advance from the gauge’s Friday close. While a number of traders have come to consider a Democratic sweep followed by a prompt fiscal deal among bullish scenarios for the equity market, Lakos-Bujas disagrees, seeing Trump’s victory as the most favorable outcome.
“A ‘Blue Sweep’ scenario is expected to be mostly neutral in the short term,” JPMorgan’s strategists including Lakos-Bujas said in a report dated Friday. “It would likely be accompanied by some immediate positive catalysts (i.e. larger fiscal stimulus/infrastructure) but also negative catalysts (i.e. rising corporate taxes).”
With days left until the election, traders are shrugging off the risk of a contested election -- at least judging by a flattening volatility curve -- corresponding with polls showing a widening lead for Joe Biden over the past month. Near-term uncertainty has remained elevated, with the Cboe Volatility Index stuck near a 30 level for weeks now, likely reflecting concern that sectors of the economy and markets that the candidates have referenced the most could see some wild swings post-election.
A quick look at the top constituents of a Biden and Trump baskets of stocks created by JPMorgan, which bet on potential winners from either Democrats or Republicans taking control of Washington, shows the stakes are sky-high. Alternative energy and green-tech stocks in the Biden basket, for instance, have outperformed traditional energy and fossil fuel companies, among the top winners from Trump’s victory, by 84 percentage points since June, data compiled by JPMorgan show.
Earlier: Barclays Sees VIX Plunging to Pre-Covid Level in Clear Biden Win
Futures on the S&P 500 Index are trading 1% lower following losses in Europe’s Stoxx 600 Index and a dip in the Shanghai Composite Index on the first day Communist Party’s four-day meeting. News over the weekend confirmed a rising number of infections on both sides of the Atlantic, pushing Treasuries and the dollar higher as investors rushed into havens. Futures on the Nasdaq 100 Index are 0.9% lower after Europe’s application software giant SAP SE dropped as much as 21% after cutting its revenue forecast for the full year.
Notes From the Sell Side:
Apollo Global Management was upgraded to outperform at Evercore ISI, which wrote that recent share-price weakness related to Leon Black’s relationship with convicted sex offender Jeffrey Epstein was overdone. Shares down 14% from a peak hit earlier this month, but “this issue will ultimately have limited business impact to the company,” wrote analyst Glenn Schorr. “Plenty of LPs might rightfully put pressure on APO now, but [will] ultimately continue to invest with them.” The firm added that when considering APO as a stock, “investors & LPs should eventually separate the man from the company,” as the company “had no business dealings with the bad guy.”
Winnebago Industries was upgraded to buy from neutral at Citi, which wrote that motor homes should continue to see strong demand throughout the pandemic. “A return to extensive travel (planes, cruise, hotels) is several years away, while we believe that the attractiveness of the RV lifestyle is here to stay,” wrote analyst Shawn Collins. The firm added that it was “encouraged” by WGO’s ability to grow its market share.
First Solar and SunPower were both downgraded at Credit Suisse, which cited valuation following recent gains. Shares of SunPower are up more than 440% from an April low, and the valuation “already implies strong Ebitda recovery through 2022,” while First Solar is “approaching peak multiples,” Credit Suisse wrote. The firm added that solar manufacturing “will be a cyclical industry with limited tailwinds,” whereas for residential solar, “any multiple expansion/shrinking will rather be driven by supply/demand mismatch.”
Sectors in Focus:
Dunkin’ Brands shares are up 18% premarket after the Dunkin’ Donuts and Baskin-Robbins parent company confirmed Sunday afternoon that it has held preliminary discussions to be acquired by Inspire Brands.Cenovus Energy on Sunday agreed to buy Husky Energy in a C$3.8 billion all-stock deal that will combine two of the largest players in Canada’s beleaguered oil-sands industry. Watch HSE CN, CVE CN and companies like SU CN, IMO CN for a move.China said it will impose unspecified sanctions on defense contractors Lockheed Martin, a unit of Boeing Co. and Raytheon Technologies after the U.S. approved an arms sale to Taiwan last week, Chinese Foreign Ministry spokesman Zhao Lijian said Monday. Watch BA, LMT and RTX for a move.Watch KO after Barron’s says the beverage company is an under-appreciated post-pandemic reopening play.