Need to Know: Investors are counting too much on a Trump win, warns State Street

Federal Reserve chairman Jerome Powell is in the spotlight on Tuesday, as he heads to Capitol Hill for two days of testimony.

With the coronavirus and its potential effect on the global economy in the backdrop, some are hoping for a “more dovish tone out of the Fed chairman, with maybe the door open to [a] rate cut later this year,” said Jasper Lawler, London Capital Group’s head of research.

The Democratic presidential primary in New Hampshire, where left-leaning senator Bernie Sanders is leading in some polls, will also vie for investor attention. That brings us to our call of the day from State Street Global Advisors’ deputy global chief investment officer, Lori Heinel, who cautions that investors need to give more thought to politics right now.

“I think investors are sort of sanguine about the idea that [President Donald] Trump will mostly likely win, and if you look at most of the analysis, they predict overwhelmingly that Trump will defeat any of the likely Democratic candidates,” Heinel told MarketWatch.

“If that doesn’t happen or if it looks as though the Democratic candidates were gaining momentum, or depending upon which of the candidates it might be, the reversal in major policy imperatives would be quite dramatic,” she said.

That could mean the Trump administration’s mostly business-friendly policy approach to the energy, healthcare and financial industries could be “completely reversed under certain Democratic regimes,” said Heinel, adding that “investors clearly are not factoring in any kind of likelihood of a Democratic win.”

Wall Street has cheered the president’s term in office as it has come with new highs for stock markets, but some fear the possibility of tax hikes and fresh regulations from a leftist Democratic candidate.

Investors should not completely count on either a Republican or Democratic candidate being a shoo-in, though betting against stocks hasn’t been a great option, said Heinel.

“For individual investors, number one if you’ve got short-term cash flow needs, put that aside into a more liquid, lower-risk portfolio,” she said. Investors can also try managed volatility or low-volatility stocks, and “investments that have a bit more of an income dimensionality to them.” There’s also gold.

“Gold is one of the few asset classes that does provide those positive returns in strong upward-leaning equity markets as well as protection on the downside,” said Heinel.

The market

The Dow DJIA, +0.37% , S&P SPX, +0.61% and Nasdaq COMP, +0.86% are up after the release of prepared Powell comments from his testimony. Europe stocks SXXP, +0.99% are up, and Asian markets ADOW, +0.66% finished mostly higher as investors wait for news of more China stimulus to fight the impact of the coronavirus.

The chart

JP Morgan Chase’s chart shows a map of manufacturing facilities (yellow) in relation to Hubei province, the coronavirus’s epicenter.

The buzz

Shares of sports gear maker Under Armour UA, -15.87% are slumping on an earnings miss and weak guidance, and those of tire maker Goodyear GCI, +1.22% are also sliding on results. Stock in toy maker Hasbro HAS, +1.17% is up after its results. Results from ride-sharing company Lyft LYFT, -0.07% after the close.

Shares of telecommunications providers Sprint S, +72.40% and T-Mobile TMUS, +11.50% are surging after a judge has approved the $26 billion merger.

A new study of Chinese coronavirus patients shows the incubation period could be 24 days, rather than the previously thought 14 days. That’s as the death toll surpassed 1,000 in China, with the number of infected at more than 42,000. South of Beijing, over 11,000 visitors to a shopping mall face quarantine.

A survey shows small-business owners have turned more optimistic.

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