Welcome to Thoughts on the Market. I'm Michael Zezes, head of Public Policy Research and Municipal Strategy for Morgan Stanley.

Along with my colleagues bringing you a variety of perspectives, I'll be talking about the intersection between U.S. public policy and financial markets.

It's Wednesday, February 26th at 9 a.m. Eastern.

Last week's Nevada Caucus ended in a clear victory for Senator Bernie Sanders.

Combined with polling showing him doing well in many upcoming primary states,

the media is now crowned him the frontrunner for the nomination.

And we've started to see this perception reflected in the pricing of markets we thought would be sensitive to potential policy changes.

The most obvious example is the stock prices for health insurers, which on Monday were down 7.1%, nearly 4% more than the broader S&P 500 index.

Here we see an opportunity to follow the core principle we set out in our 2020 election

framework. Be reactive rather than proactive, and let plausible policy paths be or guide.

Said more simply, don't confuse a candidate's policy ambition with what policies can actually get done.

For policies that could affect health insurance companies,

we think this means that potential health care reform, even under a hypothetical President Sanders, would not only fall short of the risk of Medicare for all, but could create some fundamental benefits for the sector.

Why? Three reasons to consider.

First, many election outcomes preclude the potential for Medicare for all.

It's unlikely to become law in a divided government or Republican sweep

since Republicans generally oppose such plans.

Second, even if the government were under unified Democratic control, it's likely in our view that

legislative power would accrue to moderate senators.

As we've argued before, for Democrats to get that level of control, they likely need to pick up seats in moderate

states like Maine, Colorado, and Arizona, as well as either defend a seat in Deep Red Alabama, or pick one up in Red Leaning,

North Carolina.

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