'Bond king' Jeffrey Gundlach says a Bernie Sanders presidency is possible in 2020. Here's what it could mean for the stock market.
Influential ‘bond king’ Jeffrey Gundlach expects 2020 to be a highly volatile year for finance, and no risk is bigger than a Bernie Sanders presidency.
The bull market’s revival in 2019 is unlikely to continue with the same fervor this year, Gundlach warned last week in a webcast. For investors, this means more volatility and potentially lower returns.
One of the biggest risks for stocks is the upcoming U.S. presidential election. With Bernie Sanders surging in the polls, Gundlach expects the Senator from Vermont to face off against Donald Trump in November. If that happens, expect investors to retaliate.
He said (as per Barron’s):
If people get more worried about Bernie Sanders and they start to price in his spending programs, then you could really start to see trouble in both [long-term Treasury] bonds and stocks, which could really be on a rough ride.
Sanders’ socialist platform entails higher government spending, bigger budget deficits and possibly higher taxes to pay for it. Although President Trump hasn’t shown much fiscal restraint, under Sanders the deficit is likely to grow to record levels, Gundlach says.
The DoubleLine CEO pegs the 2020 recession risk at 30% to 35%. It’ll take a continuation of strong job creation and consumer spending to offset what appears to be a worsening manufacturing recession.
Bernie Sanders is not only crushing his Democratic opponents in fundraising, he recently overtook Joe Biden in the Iowa caucus.
A Saturday poll conducted by DM Register/CNN gave Sanders 20% support among Democrats in Iowa. Biden was second at 15%. The latest poll, conducted Monday, has Sanders back in second place at 18% with Biden at 24%.
According to CNBC, Sanders and Senator Elizabeth Warren are statistically tied in Iowa.
President Trump has upped his attack on Sanders, a clear sign he’s taking the Vermont Senator seriously.
Like Trump, Sanders is gaining traction as an anti-establishment candidate who can disrupt the status quo in Washington. His platform includes boosting construction funding for affordable housing, bringing back Glass-Steagall financial regulations, raising taxes on the wealthy, Medicare for all and raising the minimum wage to $15 an hour.
Many of his policies have been described as fiscally irresponsible, too disruptive and unworkable. But fiscal restraint and cautious pragmatism rarely attract votes during election cycles.
The U.S. economy was a mixed bag in 2019, as a slowdown in manufacturing, a looming earnings recession on Wall Street and geopolitical uncertainty created the conditions for a soft landing. The partial resolution to U.S.-China trade hostilities appears to have softened the blow, though contentious issues tied to intellectual property and technology transfers threatens to derail a more comprehensive agreement.
Gross domestic product – the broadest measure of economic growth – has expanded for nearly five years straight. Under President Trump, GDP growth kicked into higher gear, exceeding 3% on three occasions. Since tax reform was implemented, growth has waned. Over the past two quarters, annual GDP has expanded 2% and 2.1%, respectively.
Reports on consumer prices, retail sales, housing starts and industrial production will make headlines throughout the week. The reports follow a release on nonfarm payrolls that showed the creation of 145,000 jobs in December, which was below what analysts had expected.
This article was edited by Josiah Wilmoth.
Last modified: February 3, 2020 9:31 PM UTC