The suspense surrounding the next round of fiscal stimulus — will there or won’t there be a deal — has whipsawed markets this week. Investors first pushed stocks up on news of progress between Congress and the White House, only to pull back on Tuesday when President Trump said on Twitter that there would be no fresh stimulus. Mr. Trump then backtracked, demanding that Congress pass a relief bill, pushing the market up again.
But beneath the volatility, which reflects investors’ reaction to short-term developments, a subtle shift is occurring on Wall Street. Investors and analysts have begun to take into account the possibility that Mr. Trump’s time in the White House may soon be over, as Democratic presidential candidate Joseph R. Biden Jr. continues to pull ahead in polls just weeks before the election.
And that is producing some optimism on Wall Street, because many investors believe that the higher Mr. Biden climbs in polls, the lower the chance of a contested presidential election. An election with no clear winner and the fading prospects of another round of stimulus are two of the biggest threats to market stability.
Mr. Trump’s chaotic behavior in the first presidential debate, and his diagnosis of Covid-19 just days later, have been followed by polls showing Mr. Biden rising in several key swing states. On Wednesday, a new Quinnipiac University poll found that, among likely voters in the swing states of Florida and Pennsylvania, Mr. Biden had widened his lead over the president to 11 percentage points and 13 percentage points.
Also on Wednesday, the S&P 500 closed up 1.7 percent. The index has risen 2.5 percent since the first debate on Sept. 29. The market moves aren’t huge, but analysts say they are meaningful reflections of investors’ thinking at this point.
The outcome of the first debate increased “the odds of first Joe Biden becoming president, but also in line with the Democrats also taking the Senate,” said Shahab Jalinoos, global head of macro strategy with Credit Suisse in New York. “That’s obviously been a tailwind for markets since.”
Unified Democratic control in Washington is not usually high on Wall Street’s wish list, as it is associated with increased regulation and taxes. And some investors continue to have mixed feelings about a potential Biden agenda, which calls for higher taxes on corporations and the wealthy.
But largely, investors are of the view that a “blue wave” victory — in which Democrats retain the House of Representatives and retake the Senate as well as the presidency — represents the best chance to get another large injection of federal money into an economy that continues to struggle. Economists and policymakers, including the Federal Reserve chair, Jerome H. Powell, say such assistance is sorely needed, as job growth stalls, layoffs mount and temporary furloughs turn into permanent cuts.
To tease out the underlying views of investors, analysts at JPMorgan Chase & Company recently assembled baskets of shares in companies they see as potential winners or likely losers in the event of a Biden victory.
Stocks of companies in the “winners” basket included industries such as health care, renewable energy, infrastructure and companies likely to benefit from better trade relations with China. Such companies could benefit from Mr. Biden’s support for the Affordable Care Act, which has funneled significant amounts of federal dollars into the health care industry. Infrastructure, engineering and renewable energy companies could also benefit from a major stimulus push, aimed in part at countering climate change.
Potential “losers” included companies with large numbers of minimum wage workers, defense contractors and energy companies, among others. Mr. Biden’s agenda calls for raising the minimum wage to $15 an hour, and weapons makers have been beneficiaries of the Trump administration’s focus on increasing sales of American weapons overseas.
Wait, Wall Street Is Pro-Biden Now?