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Economy, Stocks  | February 12, 2020

Wall Street is not a fan of Senator Bernie Sanders. But heading into the second contest of the Democratic primary on Tuesday, investors seem unbothered — even though CNN's latest poll shows that Sanders is out front in New Hampshire.

Andrew Hunter, senior US economist at Capital Economics, thinks that has a lot to do with skepticism about whether Sanders can really prevail.

"The lack of any stock market reaction to Sanders' surge suggests that investors either still don't believe he can win the Democratic nomination against the more centrist candidates or, alternatively, that Sanders will win the nomination but, in doing so, his lack of appeal to independents makes it even more likely that Trump will be re-elected," he wrote in a recent note to clients.

Hunter thinks that if Sanders continues to do well in the Super Tuesday primaries next month, there "might be a more discernible hit to market sentiment."

Goldman Sachs' chief economist Jan Hatzius noted Monday that "both prediction markets and election forecasting models give Sanders a 40-45% probability of securing the nomination."

But he sought to dispel the idea that the contest in November was indisputably Trump's to win.

"Both the prediction markets and the head-to-head matchups — even those involving candidates other than [former Vice President Joe] Biden — indicate a considerably closer runoff in November than suggested by the widespread view among investors that President Trump is a shoo-in for re-election," Hatzius observed in a research note.

Know this stat: Between 80% and 90% of participants at Goldman Sachs' client conferences thought Trump would win re-election in November, Hatzius told clients at the end of January.

What we do know: Should Sanders emerge victorious in New Hampshire, debate among investors about how his policies would affect markets will ramp up.

Hunter argues that a Sanders presidency may not hit the US economy to the extent many assume. Congress would constrain Sanders' ability to reshape policy, and economic growth could benefit from a massive increase in federal spending on programs like Medicare for all, along with big investments in energy and infrastructure, he notes.

"Higher taxes on the wealthy and corporations would offset only a fraction of those policies," he said.

T-Mobile and Sprint may finally be able to get hitched

A US judge is expected to approve T-Mobile's $26 billion merger with Sprint, the Wall Street Journal reports — clearing the way for the two companies to form a wireless behemoth that can better compete with Verizon and AT&T.

The case: More than a dozen state attorneys general had claimed that the tie-up would raise prices and reduce benefits for American consumers. The companies, meanwhile, argued that it would save Sprint from its recent decline, giving the combined company more resources to compete and invest in 5G.

"T-Mobile is becoming Rocky and stepping into the ring with its larger competitors and developing a new punch," the attorney representing the wireless companies told the court in January.

The Journal reports that the judge is expected to make his decision public on Tuesday, and that the parties have been told a ruling is coming.

Stock shock: Shares of Sprint (S) have shot up 64% in premarket trading on the news. T-Mobile (TMUS) shares are up nearly 9%.

The coronavirus death toll tops 1,000

Stocks in Asia closed higher on Tuesday, with Hong Kong's Hang Seng rallying 1.3% and the Shanghai Composite rising 0.4%. Those gains come even as the death toll for the coronavirus outbreak has surpassed 1,000 people.

The virus continues to spread at a rapid clip. Nearly 2,480 new cases were identified in mainland China on Monday. Worldwide, 43,090 people were infected as of Tuesday morning. But investors are buying into the idea that the worst could be over soon, and the economy will recover rapidly in the second half of the year.

Evercore told clients this week that they should sit tight for now and refrain from making longer-term market decisions off of pandemic risks.

"There is not enough data to dismiss the virus as a risk to equities," analyst Dennis DeBusschere said in a research note.

Still, the investment bank observes that "financial conditions are easy," stocks are "unusually attractive" compared to bonds, and that the earnings outlook remains "solid."

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