Elizabeth warren Joseph Prezioso/AFP/Getty Images

A number of articles have highlighted Wall Street investors‘ fear of an Elizabeth Warren win in 2020 and a stock market sell-off.

But the real trouble would be if President Donald Trump wins reelection.

Trump would be free to double down on his economically damaging trade war with China, and there’s little Congress could do about it.

Warren, on the other hand, would need congressional help to pass her agenda. Such support is unlikely at best.

Neil Dutta is head of economics at Renaissance Macro Research.

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It seems as if hand-wringing among investors over a President Elizabeth Warren is a daily occurrence. Big-name Wall Street titans have raised the alarm and PIMCO recently predicted a big drop in stocks if Sen. Elizabeth Warren wins the Democratic nomination.

My meetings with investors are no different, as it is widely accepted that President Donald Trump’s reelection will be a positive development for US equities while a win by Warren would be negative.

Worries about certain sectors that could be affected by Warren’s policies have also manifested in stocks. In my firm’s work, we’ve noticed a striking relationship between Warren’s 2020 chances and managed healthcare companies such as Anthem.

Still, investors are getting a little carried away with these narratives. It should not be lost on anyone that before Trump was seen as a positive catalyst for stocks, he was seen as a big threat during the 2016 election. That call turned out to be a dud. Plenty of uncertainty remains.

Trump’s reelection could be a negative for stocks

Despite the ease some investors have with the idea, there is a big reason a Trump reelection could quickly become a problem for US stocks.

Trump has made an overhaul of the US-China trading relationship a centerpiece of his agenda and has taken a more combative stance toward Beijing than previous presidents.

The aggressive stance has been coupled with a public opinion shift toward China. The share of Americans with an unfavorable view of China recently hit a new high. If Trump wins, he could easily interpret the results as a vindication of his trade policies, or „being tough on China.“

During his first term, markets, the economy, and public opinion have all acted as a constraint on Trump’s China attacks. If the president takes too aggressive a stance, the market sells off, economy slows, and his approval on the economy suffers. With 2020 behind him and no longer facing the political constraint of another election, Trump can dial up the heat on China even more.

Historically, presidents are thought to be ineffective in their second term. Congress has no incentive to work with a lame duck, which is why many presidents spend their second term focusing on foreign policy, including trade.

Trump does not need Congress to pressure China. This could take the form of additional tariffs, investment restrictions through the Committee on Foreign Investment in the US (CFIUS), or limiting Chinese market access to the US.

In short, the strike price on the Trump put, this idea that Trump is going to come in and save the market if it gets too low or if his polling suffers too much, is probably going to be substantially lower in the second term than it is right now.

Fear about Warren is missing a key detail

Meanwhile, Elizabeth Warren’s laundry list of policy proposals has drawn the ire of some big-name investors and business executives. But there’s good reason to think people sweating over Warrens‘ agenda shouldn’t be as worried as they are.

While Trump does not really need Congress to prosecute his trade agenda, Warren needs Congress to implement her domestic-policy plans.

Right now, PredictIt, a political prediction market, shows about a 65% chance that the GOP controls the Senate after the 2020 election. That’ll make it nearly impossible for a President Warren to get her agenda through.

There are of course other scenarios to game out.

A perceived moderate Democrat could emerge victorious in the election and perhaps flip the Senate. Polls show Biden doing better than Warren in a number of battleground states where GOP senators have to defend — Arizona and North Carolina spring to mind — and Democrats could ride those coattails to wins there.

In this case, we could see a razor-thin Democratic majority in the Senate with a moderate Democrat in the White House. What would investors prefer? A center-left candidate that can get some things done or a progressive one that can get nothing done?

The broader point is that it is still very uncertain what 2020 politics means for markets, but the conventional wisdom we’ve seen that Trump is unambiguously good while Warren is unambiguously bad should be taken with a huge grain of salt.

Neil Dutta is head of economics at Renaissance Macro Research. He analyzes global economic and cross-asset market themes, providing leading-edge forecasts for institutional clients.