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JPMorgan says a Biden victory could mark a stock market shift

Joe Biden, the Democratic presidential nominee, speaking in Wilmington, Del., in September. Some analysts see a Biden victory in November boosting certain segments of the stock market.MICHELLE V. AGINS/NYT

A victory of Democratic nominee Joe Biden in the presidential election could herald the start of a rotation toward parts of the equity market that have been left behind by the rally, according to strategists at JPMorgan Chase & Co.

“We need to get through US elections event-risk first, but there could be a broadening in styles and in regional performances thereafter,” said JPMorgan strategists led by Mislav Matejka in a note on Monday. “A potential Biden victory should not be seen as a negative for markets, and could in fact lead to an internal rotation.”

The analysts, who have for months preferred growth, defensives, and US stocks, say that they’re “warming” to a possible switch of market leadership after the vote, with Biden holding a comfortable lead in national polls over President Trump a month before Election Day. They point out that value, or cheaper equities, have “dramatically” underperformed companies with stronger earnings growth in recent months, while European stocks “have gone nowhere” for four months.

The strategists are weighing in on the dilemma that’s keeping many investors up at night after the Nasdaq 100 in September had its worst drop since March as mega-cap technology stocks sold off. The 50 percent rally in US equities over the past six months and frothy valuations in the leaders of the rebound and winners of lockdowns are pushing such investors as Eaton Vance and BlackRock Inc. to prefer European stocks instead.


And JPMorgan isn’t alone in its view. Goldman Sachs Group Inc. strategists including Sharon Bell and Peter Oppenheimer on Friday said that a Democratic clean sweep would favor European cyclicals, value, China-exposed stocks and renewables.

In their Monday note, JPMorgan analysts made no comment on President Trump’s COVID-19 diagnosis and its implications. Trump has been at the Walter Reed National Military Medical Center since Friday and people familiar with the matter said his condition improved over the weekend although his release was unlikely before Tuesday.


Matejka’s team has favored long positions in such defensive and growth sectors as healthcare, tech, staples and utilities at the expense of financials, consumer discretionary and energy, but is now considering a change after the election. In addition to increased political clarity after the Nov. 3 vote, the strategists cite such factors as an increasingly reflationary environment, possible additional stimulus and positive news on the COVID-19 front.

“If Biden wins, the dollar could be potentially lower and bond yields that have been stuck completely in a range for the last six months — and that was one big impediment to the rotation — the bond yields could start to grind higher,” Matejka said in a Bloomberg TV interview with Jonathan Ferro. “You’ll have some potential further fiscal stimulus, potentially also some trade uncertainty would be reduced, and that would be a good enough starting point for these extreme markets to start to broaden out.”

He added that a pick-up in bond yields can help banking stocks, in addition to the European market in light of its underperformance versus the United States.

While many market participants are fretting over uncertainty and volatility that could result from a contested election, JPMorgan said the chances of a clear election result are rising. Biden’s possible victory is often associated with concerns over higher corporate taxes, however, the strategists say that in light of the economic slowdown he’s likely to instead prioritize business recovery and jobs growth.


“A potential Biden victory is unlikely to deliver significant tax increases, with these likely to be watered down, and additionally there could be a greater stimulus focus and consumer support,” JPMorgan strategists, which also include Prabhav Bhadani and Nitya Saldanha.

Matejka added in the Bloomberg TV interview that Biden had made his tax-hike proposals “in a very different world without the virus” and will be careful not to hurt the nascent recovery.