Bernie Sanders surge unnerves market's 'Trump bump' winners

Sen. Bernie Sanders is surging in the polls and that has some stock-market investors recalibrating their expectations for the rest of the year.

Sanders, the senator from Vermont, has the support of 27 percent of Democratic primary voters, according to a recent NBC News/Wall Street Journal poll, opening up a double-digit lead nationally. Additionally, the online platform PredictIt now gives the self-proclaimed Democratic Socialist a 58 percent chance of winning the Democratic nomination, up from 25 percent at the end of last year.

While the NBC News/Wall Street Journal poll shows President Trump’s job approval rating at 47 percent, tied for his all-time high, the president still trails Sanders and the four other major Democratic candidates in hypothetical general-election matchups.

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“Bernie Sanders is still a long way from the White House, but several of his policies look very negative for U.S. equities,” Oliver Allen, assistant economist at London-based Capital Economics, wrote in a recent note. “If his support continues to climb, that could start to weigh on the U.S. stock market.”

Investors have cheered Trump’s stock-market friendly policies, including cutting corporate taxes and loosening regulations. The benchmark S&P 500 has surged 56 percent since his Nov. 8, 2016, election victory, but a win by Sanders puts those gains in jeopardy.

Sanders has championed reversing Trump’s corporate tax cuts, breaking up Big Tech, and shifting the balance of power from big business to workers.

It’s policies like those that have led legendary hedge fund managers Stanley Druckenmiller and Paul Tudor Jones to predict the stock market would plunge by 40 percent and 20 percent, respectively, if Sanders were to win the White House.

The majority of investors have “expressed a high level of confidence that President Trump is likely to be re-elected,” wrote Mark Haefele, chief investment officer at UBS Global Wealth Management. “In our view, this signals that investors might be underestimating the risk of higher volatility on certain sectors that are sensitive to potential policy change.”

He says health care and technology are areas where investors may be underestimating the risk of higher volatility.

While Haefele believes Medicare-for-all is “too politically challenging to be implemented after the 2020 election,” the current valuations of managed care companies would be tough to sustain with that as an active U.S. policy goal. The iShares US Healthcare Providers exchange-traded fund has soared by 74.2 percent since Trump's election win.

In Silicon Valley, he said, “potential threats of increased regulation and a break-up of larger companies would raise compliance costs and constrain profitability” at firms that helped the Technology Select Sector SPDR Fund more than double since Nov. 8, 2016.

There's one bright spot, however: Sanders' backing of the Green New Deal would make companies connected to the clean energy and solar industry "a hedge against the risk of more burdensome environmental legislation," Haefele noted.

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"We doubt that a Sanders presidency would be a major threat to the US economy," concluded Allen, of Capital Economics. "But many of his policies, from banning share buybacks to radically shaking up U.S. energy policy, could be significant for U.S. equities."