Politics

An Elizabeth Warren presidency may not be as bad for stocks as some investors fear, Jefferies strategist suggests

Key Points
  • "In our industry ... there's a general perception that it would be a significant equity market correction if she were to win," says David Zervos, chief market strategist at Jefferies.
  • "But people forget she's not that different from Obama. If you put the two of them side by side in 2007, they had very similar agendas — healthcare, regulation and financial, and energy and environment," he told CNBC's "Squawk Box."
  • Under Barack Obama, the stock market soared, with the Dow Jones Industrial Average jumping more than 140% by the time his term ended.
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A Warren presidency may not be that bad for markets: Jefferies

An Elizabeth Warren presidency would likely be tough on some sectors, but it might not hit stock markets as hard as feared, a Jefferies strategist suggested on Wednesday.

Warren, a Democratic presidential 2020 frontrunner, has bashed the rich — proposing a wealth tax — and lambasted the financial industry among other sectors. As the Massachussetts senator climbs in Democratic presidential polls, a growing pool of investors warn that her win would result in major losses for the U.S. stock market.

"In our industry ... there's a general perception that it would be a significant equity market correction, if she were to win," said David Zervos, chief market strategist at Jefferies. "She would change returns on capital expectations, earning expectations, regulations would go up, taxes would go up, all of these things."

His comments come after billionaire Paul Tudor Jones on Monday predicted that the S&P 500 would sink about 25% if Warren beats current U.S. President Donald Trump at the 2020 ballot box.

But Zervos suggested that the impact on the stock markets may be more tempered.

"But people forget she's not that different from Obama. If you put the two of them side by side in 2007, they had very similar agendas — healthcare, regulation and financial, and energy and environment. From 2009 going forward, when Obama took office, we never looked back. The stock market just rallied," he told CNBC's "Squawk Box."

Under Barack Obama, who was U.S. president between 2009 and 2017, the stock market soared, with the Dow Jones Industrial Average jumping more than 140% by the time his term ended. That's the third-best stock market performance since World War II for any president.

Obama was known for his signature healthcare law, more commonly known as Obamacare, which significantly expanded health coverage by mandating everyone gets health insurance — or pay a tax penalty.

Democratic presidential candidate Sen. Elizabeth Warren (D-MA) speaks during a rally in Washington Square Park on September 16, 2019 in New York City.
Bauzen | GC Images | Getty Images

Similarly, Warren is a fierce supporter of Medicare for All, which also would put the government in charge or providing health insurance for practically all Americans. Warren has also explicitly supported an end to private health insurance plans under her healthcare plan.

She's also taken a hard stance on energy policy and Big Oil companies, just as Obama did with his Clean Power Plan, which pressured the coal industry by requiring power plants in some cases to undertake expensive upgrades or shut down. It also established the first nationwide rules for carbon emissions.

Warren's stance on those issues has led analysts to warn that drugmakers, in addition to energy and financial companies — could take the most heat under a Warren administration.

"She's not going to be friendly to the financial industry. She's not going to be friendly to the energy industry. She's not going to be friendly to the tech industry," Zervos said.

Will Warren be as tough on China?

There have also been many warnings from analysts that Warren would be even tougher on China than Trump has been.

Former White House Chief Strategist Steve Bannon, for instance, earlier this month told CNBC that "she's trying to get to the right of President Trump."

The U.S.-China trade war has seen both sides imposing several rounds of tariffs on each other's goods, with several negotiations breaking down with sticking points — as Washington accuses Beijing of intellectual property theft and forced tech transfers — unresolved. The dispute has upset markets, upended supply chains and hit manufacturing activity as well as the sales of companies – including American ones.

Since then, the anti-China rhetoric has spread in Washington beyond the current Republican administration, to the Democrats as well.

But Zervos is of the opinion that Warren has got to "be more nuanced" than Trump when it comes to negotiating with China, even if she has similar concerns as the current president.

"Elizabeth might try to get the same thing done as Donald Trump, but her methodology would probably be much more likely to succeed quickly, and without a lot of hiccups than what we have today where we're kind of running in guns blazing saying things that may upset a culture," said Zervos, referencing the culture of "politeness" in Asia.