The S&P 500 could jump 14% to 3,900 if Trump wins the election, JPMorgan says
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- The S&P 500 could rally around 14% to hit 3,900 if President Donald Trump wins the November election, according to JPMorgan.
- A Trump victory is the "most favorable outcome for equities," a team of analysts led by chief US equity strategist Dubravko Lakos-Bujas said in a note on Friday.
- A 'Blue Sweep' scenario would be mostly neutral for equities in the short-term, they said, because although the economy would see more federal stimulus, that could be offset by rising corporate taxes.
- JPMorgan expects energy, financials, and healthcare to see the biggest moves as they were the explicitly referenced sectors by both Biden and Trump on their campaign trails.
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The S&P 500 could rise 14% from its current level to 3,900 if Republican Donald Trump retains his position in the White House, JPMorgan analysts said on Friday.
A Trump victory could push the mega-cap index higher by 300 points from the firm's base-case target for the year-end. The S&P 500 stood at about 3,400 at Monday's close.
Markets have been preparing for a Democratic sweep and front-loaded stimulus to boost economic recovery. But JPMorgan analysts led by Dubravko Lakos-Bujas expect "an 'orderly' Trump victory as the most favorable outcome for equities."
On the other hand, "a 'Blue Sweep' scenario is expected to be mostly neutral in the short term, as it would likely be accompanied by some immediate positive catalysts (i.e. larger fiscal stimulus / infrastructure) but also negative catalysts (i.e. rising corporate taxes)," the team wrote.
After analyzing Twitter sentiment and comparing it to traditional polling data, JPMorgan said there is more evidence now that the race is tightening. But traders seem to minimizing the risk of a contested election.
The bank expects the energy, financials, and healthcare sectors to see the biggest price swings, as they were most explicitly referenced by both Biden and Trump on their campaign trails.
JPMorgan has created a basket of stocks for both candidates that bets on potential winners from either Democrats or Republicans winning in November.
A glance at the top components of both baskets shows that the Biden basket, inclusive of alternative energy and green-tech stocks, is outperforming the Trump basket, with traditional energy and fossil fuel companies, by 66%.
JPMorgan
"Given the large divergence between these two baskets (i.e. similar to momentum/value), coupled with our expectation that COVID-19 headline risk likely declines post-election, we see an increasingly compelling case for Value in the coming period," the analysts said.
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