NEW YORK (Reuters) - The resurgence of former Vice President Joe Biden in the race for the Democratic U.S. presidential nomination could help support a stock market that has been roiled by concerns over the spread of the coronavirus, market strategists said.
Stocks rose on Wednesday and health insurers roared higher, as Biden’s strong showing in the Super Tuesday contests appeared to ease some market worries that progressive rival Bernie Sanders would run away with the Democratic nomination.
Investors were also digesting the potential effects of Tuesday’s 50-basis point rate cut from the Federal Reserve, as well as other moves by global central banks intended to take the edge of the coronavirus’ economic impact.
“It feels like the Democrats are coalescing around a moderate candidate and that is probably a positive for the market,” said Art Hogan, chief market strategist at National Securities.
An RBC Capital Markets survey had found most investors see Biden as a neutral outcome for U.S. equities, but the percent who said he was bullish picked up in December, RBC said in a note this week.
Most equity investors have viewed a victory by President Donald Trump, who favors reduced taxes and regulations, as the most favorable outcome for stocks, according to RBC. Sanders, meanwhile, was seen as one of the most negative.
A self-described democratic socialist, Sanders is backing policy overhauls that have spooked investors, including Medicare for All legislation that would essentially abolish private insurance.
“If we ultimately get to the point where the supposition is you have got a Trump-Biden election coming in November, the market is fine with that and moves on to focusing on other things,” Hogan said.
A strong performance in the first voting states by Sanders, a U.S. senator from Vermont, helped burnish him as the front-runner and also, investors said, played a secondary role behind coronavirus in the recent market volatility.
Shares of UnitedHealth Group Inc (UNH.N) and other health insurers, which have swung in recent months on Sanders’ prospects, were soaring on Wednesday, and healthcare .SPXHC was the best-performing S&P 500 sector, rising more than 4%.
“There is no doubt that Biden outperformed expectations,” JP Morgan healthcare analyst Gary Taylor said in a note. “This is a clear incremental positive for the managed care sector, which we still believe will trade in inverse correlation to Sanders’s nomination odds.”
Katie Koch, Goldman Sachs Asset Management global co-head of equities, said her business is increasing its positions in several healthcare stocks, including genomics company Moderna Inc (MRNA.O).
“Healthcare really has been hurt by the combination of coronavirus and also the backdrop of the election noise, but this is a great sector,” Koch said in an interview with Reuters.
Momentum for Biden seemed to build on Wednesday after former New York City mayor Michael Bloomberg dropped out of the race and said he was backing the former vice president, further consolidating Biden’s moderate support and essentially narrowing the field to a two-person race.
On the betting website PredictIt, “Yes” bets for Biden on the question of “Who will win the 2020 Democratic presidential nomination?” were trading at 78 cents as of late morning Wednesday, compared to 27 cents on Friday. Such bets for Sanders were at 18 cents on Wednesday.
But the race remained uncertain with key states such as Michigan, Ohio and Florida due to go to the polls later in the month.
“The big thing is whether Bernie Sanders can regain his momentum,” said Matt Maley, chief market strategist at Miller Tabak. “If that happens, it could absolutely have a negative impact on the market.”
Reporting by Lewis Krauskopf; additional reporting by Elizabeth Dilts Marshall; editing by Ira Iosebashvili and Lisa Shumaker