Vermont Sen. Bernie Sanders is favored to win the New Hampshire Democratic primary Tuesday, but markets give him low odds of winning the White House and are betting on a victory by President Donald Trump.
Analysts said the primary will be important, however, because it could add some clarity to the path of moderate candidates running against the left-leaning Sanders.
It may also give an early look at where former New York Mayor Michael Bloomberg might fit in, once he joins primary races on Super Tuesday. Bloomberg, a successful businessman and founder of Bloomberg L.P., is not in the New Hampshire primary, but he is the Democratic candidate that might be most palatable to markets.
"We're trying to figure out if there's a moderate alternative to Bernie Sanders…If Pete Buttigieg puts up big numbers, that's two states in a row where he puts up big numbers," said Dan Clifton, head of policy research at Strategas Research. "And he's establishing himself as that moderate alternative. The key to me is do the moderates end up splitting the vote, allowing Bernie Sanders to get a larger lead?"
The market mood going into the New Hampshire primary is very different than just eight days ago, when the Iowa Democratic caucuses took place and Sanders was expected to make a big showing. Sanders is viewed by many on Wall Street as negative for the stock market for his policies on health care, taxes, and energy.
But the Iowa caucuses were far from smooth, and Democrats had difficulties determining the outcome, with no winning candidate immediately apparent. Buttigieg, former Mayor of South Bend, Ind., took the most delegates, even though Sanders was leading in the polls. Former Vice President Joseph Biden, who was leading nationally, came in fourth.
Biden was leading Monday by a tiny 0.3 percentage points over Sanders in national polls, on average, according to RealClearPolitics.com.
Ahead of New Hampshire's primary Tuesday, the market is far less anxious about Sanders. "They saw a dysfunctional Democratic party, a president on the march and a Trump win," said Clifton. Trump was acquitted by the Senate last week of the charges he abused the power of his office and obstructed Congress.
Ed Mills, Raymond James Washington policy strategist, said conventional wisdom says a Sanders surge would be bad for markets. "The market seems to view the current state of affairs as a win-win-win scenario," Mills wrote in a note. "By this view, a Trump re-election is positive for stocks. A Sanders nomination/contested convention increases the likelihood of a Trump victory and potentially even an all-Republican government, also a positive for stocks. A moderate candidate emerging as the nominee (investor interest in Bloomberg's prospects is building) is also viewed as a win."
Tom Block, Washington strategist at Fundstrat, said if there's no clear leader among the moderates by Super Tuesday on March 3 when a dozen states vote, Bloomberg may have a better shot.
"If Super Tuesday comes and if there isn't any clear person dominating that moderate lane, that's the lane Michael Bloomberg would be in," said Block. "He's got to do super on Super Tuesday."
Clifton said the early state primaries have an outsized impact. "They get significant media attention. It also shows which candidates have their political organizations in place and which do not," said Clifton. "If Joe Biden ends up fourth or fifth place in New Hampshire, the presumptive front-runner is going to be pressured to get out of the race."
According to RealClearPolitics.com, Sanders is leading in New Hampshire with a more than 7 percentage point lead on average in polls, over Buttigieg. Biden is tied for fourth place with Massachusetts Sen. Elizabeth Warren. Minnesota Sen Amy Klobuchar has a slight lead over them and is in third place.
Bloomberg's chances are unclear he was late to the race, and Clifton said the billionaire would be counting on a contested convention.
"A billion dollars really matters. He's the only candidate rising in the national polls. His money is working. What we're seeing Is Bloomberg is becoming a second choice candidate if something happens to Biden," Clifton said. He said the market would be comfortable with Bloomberg, especially if Republicans maintain the Senate so they can thwart any effort to raise taxes.
Block said Bloomberg may be able to reach a group of voters that are not happy with all of Trump's policies.
"He's been advertising like crazy. He's got a lot of anti-Trump commercials on health care. He's focused on a real weakness of Donald Trump, and I think he drives Trump absolutely bonkers. He really did become a billionaire on his own," said Block "It's unclear how important likability is versus 'we've got to win."