Biden’s Decision Not to Seek Reelection Sparks Market Reactions
On Sunday, President Joe Biden shook the political landscape by announcing that he will not seek reelection in November 2024. This unexpected decision has sparked a whirlwind of speculation and uncertainty about who will occupy the White House come January 2025. Despite the potential for political upheaval, the stock market showed resilience as the S&P 500 rose over 1% on Monday, suggesting investors are cautiously optimistic about the future.
Political Endorsements and Market Reactions
In his announcement, President Biden endorsed Vice President Kamala Harris as the Democratic nominee, a move supported by prominent Democrats including Speaker Emerita Nancy Pelosi. This endorsement has provided some clarity regarding the Democratic ticket, although it also introduces new variables into an already complex electoral equation.
Lori Calvasina, head of global equity strategy research at RBC Capital Markets, noted in a client memo that Biden’s decision adds “yet another curveball” for investors attempting to navigate the political landscape’s impact on the stock market in 2024. Investor confidence appears to be a crucial driver for stocks, with betting markets showing a positive correlation between former President Donald Trump’s rising odds of winning and the S&P 500’s recent gains. As Trump’s chances peaked around July 16, the S&P 500 reached its latest high.
“If the change at the top of the ticket swings momentum in the race for the White House back to the Democrats, the historical relationship suggests that it could be fuel for a short-term pullback that may already be underway,” Calvasina wrote. She further explained that if Trump increases his lead, stocks might avoid the anticipated pullback, although she cautioned that this relationship might not hold steady.
Dave Mazza, CEO of Roundhill Investments, echoed similar sentiments in an interview with Yahoo Finance. He highlighted that if a new Democratic nominee makes the presidential race more competitive, investors should brace for increased market volatility. Mazza predicted that the upcoming week in the markets could be “messy,” citing Big Tech earnings, economic growth readings, and inflation data all coinciding with the ongoing political shifts.
Economic Uncertainty and Corporate Earnings
“The biggest headlines for the near term are going to be what happens with the presidential election,” Mazza said. He stressed that while macroeconomic factors like corporate earnings and Federal Reserve policies will ultimately drive long-term market trends, the immediate focus will be on the evolving political scenario.
Paul Ashworth, chief North America economist at Capital Economics, advised investors against overanalysing Vice President Harris’s past policy positions from the 2020 primary campaign. He pointed out that her focus had been more on social issues rather than economic initiatives, suggesting that any market reactions should be based on her current and future policy stances.
As Wall Street grapples with these developments, the general sentiment is one of cautious observation. Investors are in a “wait-and-see” mode, recognising that the political landscape is fluid and subject to rapid changes. With the potential for a Trump-Harris showdown in 2024, market participants are aware that the stakes are high and the outcomes uncertain.