The Iowa caucus results are rolling in, and the tallies look good for Bernie Sanders and Pete Buttigieg. Here's the stock market reaction.
After a “total meltdown” rocked the Iowa caucuses and portended an ominous Democratic presidential primary season, the results are finally in. And they set up an interesting dichotomy for the stock market.
Well, not all of the results are in. Approximately 62% of precincts have reported, and the early tallies show that Pete Buttigieg and Bernie Sanders are the clear leaders.
How will investors respond?
The stock market secured phenomenal gains on Tuesday, and the Dow Jones Industrial Average surged more than 400 points before the Iowa results were finally released.
The futures market was singing a different tune in overnight trading, with Dow Jones mini contracts edging down 16 points, or 0.1%.
U.S. stock futures had surged overnight leading into Tuesday’s rally after a technical debacle delayed the reporting results of Iowa’s long-awaited Democratic caucuses – and the formal beginning of the 2020 presidential primary season.
The chaos allowed Trump to score two victories in Iowa. He won the all-but-uncontested Republican vote in a landslide, but the Democratic meltdown delivered him another unexpected triumph.
“The only person that can claim a very big victory in Iowa last night is ‘Trump,’ he gloated.
But the Iowa results are finally in, shifting the focus to the next steps of the Democratic presidential primary.
Iowa only awards 41 delegates – just 2% of the 1,990 needed to win the nomination – and those were split among several candidates.
But it’s a crucial momentum builder as the Democratic primary ramps up to an inflection point: Super Tuesday (March 3), when 15 states and territories will award more than 1,300 pledged delegates.
By March 4, the Democratic primary should be a two-horse race. Depending on how the pendulum swings, it could quickly evolve into a victory lap for the presumptive nominee.
Nationally, Joe Biden maintains an edge on Bernie Sanders, according to the RealClearPolitics average. But that gap is narrowing, and Sanders boasts a comfortable lead in New Hampshire ahead of the Feb. 11 primary.
A Sanders victory in New Hampshire (Feb. 11) could spiral into an upset win in Nevada (Feb. 22), where he only trails by 3.5 points in the latest RCP average.
That would put Joe Biden in a precarious position when South Carolina – his southern stronghold – votes on Feb. 29.
One place where the primary race is not close is the betting markets. Sanders is trouncing Biden on prediction platform PredictIt.
The senator from Vermont’s implied odds took a big hit after the first Iowa results rolled in. But they’re still more than double those of the former vice president, who actually ranks third behind billionaire Mike Bloomberg.
Buttigieg, despite his strong Iowa performance, is a distant fourth.
Donald Trump is universally viewed as the most investor-friendly candidate, and his administration has already begun to tease a second round of tax cuts that the president claims would boost economic growth – and the stock market.
Given his ties to the financial establishment, Wall Street would be relieved if Michael Bloomberg ran the table. “Moderates” like Joe Biden and Pete Buttigieg would likely take a conventional Democratic approach to the economy as well.
Bernie Sanders, on the other hand, is not Wall Street’s dream candidate. According to some stock market analysts, a Sanders presidency would be more like a nightmare.
Presidential elections are always risk events for equities. But a Trump-Sanders showdown could magnify that volatility to historic proportions.