👀 Ones to watch: The MOST undervalued shares to buy right nowSee Undervalued Shares

Democrats Sweep May be Best for Risk Markets, Credit Suisse Says

Published 28/09/2020, 08:32 pm
©  Reuters
GS
-
CSGN
-
TLT
-

(Bloomberg) -- A potential Democratic sweep in the U.S. elections may be the rosiest scenario for risk markets like value and cyclical stocks.

Joe Biden in the White House and his party controling the Senate and House has been cited by some strategists as a potential downer for markets because it could lead to higher corporate tax rates. But to Credit Suisse (SIX:CSGN) Group AG, the chance of greater deficit spending under that scenario is “massively pro-growth” and outweighs other concerns for equities.

“The most positive outcome for risk markets is a Democratic sweep given the potential for significantly higher fiscal stimulus, and consequently, higher economic growth,” said Credit Suisse equity-derivatives strategist Mandy Xu. “Conversely, the most negative outcome is a Biden White House with a split Congress, in which case we see little prospect of further fiscal aid and increased probability of a stalled recovery/prolonged downturn.”

A Democratic sweep could lead to yields rising, cyclical stocks outperforming and a more pronounced rotation away from growth into value if there’s a bigger fiscal package, Credit Suisse said. On yields, that matches the view of Goldman Sachs Group Inc (NYSE:GS). strategists led by Praveen Korapaty, who said on Sept. 25 that yields could jump in such a scenario.

That’s led Xu to recommend a bearish put-option spread on the iShares 20+ Year Treasury Bond (NASDAQ:TLT) ETF expiring in January, as well as wagers on small stocks beating larger ones, plus a rotation away from technology shares.

For the scenario where Biden wins but there’s a split Congress, she sees a broad macro sell-off with a bid for havens, and recommends buying a put spread on the S&P 500 while selling a call option.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.