The Bernie Sanders 'panic index' | Charts that Count
The FT has created an index of companies that could be most affected by a Bernie Sanders presidency to test how Wall Street is reacting to the Democratic primaries. FT data journalist Brooke Fox explains
Filmed and edited by Donell Newkirk. Produced by Ben Marino
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Do you think that markets can predict the outcome of elections? Today, we're going to look at an index that we created that we think sort of shows the industries that might be affected by a potential Bernie Sanders presidency. Now Bernie Sanders hasn't won the Democratic primary election in the US yet, but he is one of the frontrunners. And he is one of the candidates that could have the biggest impact on businesses. And so we wanted to take a look at what those businesses might be and what their prices are in the markets right now and if that is reflecting the sentiment about Bernie Sanders.
So this is the index. And I do want to caution at first by saying this is more of a thought experiment than it is a truly scientific idea. I will get into in a moment more of a breakdown of the companies that we have put into this index, but you should know that it is market weighted. All of the companies are larger than $50bn.
And we do think that it is sort of indicative of the companies that might be affected. But, again, this is all hypothetical because, in reality, you don't know what's going to happen in the future. That said, let's take a look at what's been happening.
So this chart goes back to the beginning of December. And I want you to look at the index because the index is inverted. So this is a market cap weighted index, which means that as the line goes down, which it has been decreasing since the beginning of December, because the axis is inverted that actually means that these companies' market caps are increasing.
So it's flipped. By the way the reason that we did that is because this is the panic index. So as these companies do better, we think maybe sentiment about Bernie Sanders is that he's not doing as well in the election.
So as things go down, we think less concern about Bernie Sanders. However, when they spike up, that is a potential indication that he might be doing well and that these companies might be concerned. And you can see, that happened at the end of January.
What's cool about this index is that if you actually go back and look at an average of the polls it sort of reflects what's happening. At the end of January there was a rise in Bernie Sanders' popularity. So we thought that might be sort of indicative. And then right here, this point is the night of the Iowa caucus.
Now, obviously, things didn't go smoothly during the Iowa caucus as far as data collection. However, there was an immediate impact in that it looked like Bernie Sanders was going to have some really stiff competition from Pete Buttigieg primarily, but also from some of the other candidates potentially. And so the panic index started to fall. And then, as you will notice as of recently if you've been following the US democratic primary, it begins to tick up again just slightly in the last few days.
As again, Bernie Sanders' popularity has started to swell. So we're going to keep an eye on this as things move forward throughout the race. But I want to give you a breakdown of what's in here.
One of Bernie Sanders' big policy priorities is universal healthcare. As such, about 29 per cent of the companies in this index are healthcare companies. The next largest faction of companies in this index are financial companies because Bernie Sanders talks quite a lot about Wall Street greed and about breaking up the banks and sort of minimising the influence of Wall Street. The next largest faction is energy companies, particularly energy companies that primarily work in fossil fuel because that's another policy priority of Bernie Sanders, which is to shift the US to a more renewable system and pull back some of that fossil fuel dependence.
Next we have large tech companies. And that's because Bernie Sanders talks a lot about breaking up large monopolies, breaking up Big Tech companies, reinvigorating the FTC, pushing for more antitrust. So that means that some of the mergers that we've seen in recent years, in many industries, they could be undone. And in particular, they talk quite a bit about tech, not that there's been a ton of large mergers there, but just that those companies might be too big, they might have too much control over American lives.
And so they need to be broken up. I've run out of room, so I'll just tell you that the remainder are internet and cable providing companies. Again, big oligopoly there that Bernie Sanders would like to see broken up, and he also talks about providing free broadband internet. And then as well a little bit of entertainment just because that's an area that's had a lot of consolidation. And Bernie Sanders has talked a little bit to that directly.
So this is the composition of this index. Again, it's totally hypothetical because of all these policies, who even knows if he would pass them, who even knows who's going to be the Democratic primary candidate. So we're just going to keep an eye on all this, and it's sort of a fun way to show how markets and politics are connected.