Medicine for the Coronavirus? Plus, Bernie is Still the Favorite

Insights and Market Perspectives

Author: Greg Valliere

March 2, 2020

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WE WOULDN’T CHANGE MUCH from last Friday’s piece: there are positives amid the market carnage, and the biggest one of all — massive monetary and fiscal stimulus — is now clearly on the table.

IT WOULD BE NAIVE to suggest that the virus has peaked; thousands of more infections are likely. But our sense is that the markets have largely priced in a very grim first half of stagnant economic growth and anemic profits, which will prompt central banks to stimulate aggressively. Because of this stimulus, growth should resume in the second half, which is only four months away.

WE EXPECT A FED FUNDS CUT at the March 18 FOMC meeting of at least 25 basis points, with another reduction by early summer. In addition to the monetary stimulus, the Washington spending binge will continue unabated; a tax cut, unlikely to pass in the House this year, is likely if Donald Trump wins re-election — which still looks likely.
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DEMOCRATS ARE FACING A PERFECT STORM: Excuse us for not climbing aboard the Joe Biden bandwagon. He was supposed to win big in South Carolina, and thanks to a key endorsement, he did. Did anyone expect a socialist to carry that state?

NOW THE MEDIA HAS A HORSE RACE, which is fun to follow, but some very cold water is is about to splash Biden tomorrow night in California. He may roughly break even in Texas, North Carolina, Virginia, Massachusetts, etc., but a Bernie blowout is likely in the Golden State, and by Wednesday morning Sanders will have a clear nationwide lead in delegates.

THE BIDEN CAMPAIGN, low on money until yesterday, has an anemic ground game in California; he will struggle to hit 15% of the vote, the threshold for getting delegates. There are 415 delegates at stake in California, and Sanders will win most of them. By week’s end he could lead nationwide by 300-400 delegates, maybe more.

THERE’S STILL A NARROW PATH FOR BIDEN, especially if the vapid technocrat Mike Bloomberg drops out. And there are more primaries to come — the next pivotal date is March 17, when nearly 600 delegates are at stake in Illinois, Florida, Ohio and Arizona, potentially a good day for Biden.

THE GREAT DEBATE AHEAD OF THE MILWAUKEE CONVENTION on July 13-16 is whether a candidate with a plurality of delegates (most likely Sanders) can win the nomination. Or will every non-Sanders delegate hold out for Biden? The super-delegates, mostly party veterans and luminaries, will be pivotal.

SO THIS IS WHY WE THINK THE DEMOCRATS ARE FACING A PERFECT STORM: There are only two likely scenarios: either Sanders winning the nomination, beginning with a romp in delegate-rich California; or there’s bitter trench warfare into the summer, with the party uniting to defeat Sanders — whose loyal base would turn sullen, staying at at home in November.

WHAT DOES THIS MEAN FOR TRUMP? The difference is clear — if Sanders wins the nomination, not only would he lose to Trump, but the Democrats could suffer significant House and Senate losses. If Biden wins the nomination, he’d be the underdog in a brutally negative campaign, but Democrats probably would retain the House.

THUS A BERNIE SURGE THIS WEEK would be market-friendly, a clear plus for Trump. The coronavirus panic adds an element of uncertainty to the November election, but if the economy is pumped up on stimulus by autumn, and if Trump relies on scientists like Dr. Anthony Fauci, a second term for this controversial president still looks like a good bet if he faces Sanders, and a fair bet if Biden somehow wins the nomination.