How Did the Markets Shift?
Biden Withdraws: 5 Possible Impacts This Could Have on the Stock Market
What Does This News Mean For the Market?
Introduction
Increased pressure from the Democratic party for President Joe Biden to pull out of the presidential race has led to an inevitable conclusion: Biden has withdrawn from the race today. While Biden has endorsed Vice President Kamala Harris as the new nominee, Democrats still have the power to propose a different nominee. How will this impact the economy, and more specifically, the stock market? Here’s a look at what experts had to say about it.
Immediate Reaction: Increased Volatility
- Several experts argue that Biden’s exit will increase market volatility. CEO of Impact Health USA, Josh Thompson, stated, “Investors generally prefer stability and predictability and such a significant political shift would disrupt both.” According to him, the initial response could be a sharp decline in stock prices as investors seek to hedge against potential risks.
- Michael Collins, CFA, founder and CEO of WinCap Financial, echoed the sentiment, saying that there could be increased uncertainty and volatility in the market due to a change in leadership. Collins believes that Biden's withdrawal could almost guarantee a win for Trump, further impacting investor sentiment. He added, “Investors may also react differently depending on who becomes the new frontrunner for the Democratic party and their perceived policies towards businesses and the economy.”
Supportive of U.S. Equities
- In terms of specific sectors, some experts argue that an exit could help U.S. equities. Timothy Holland, CFA and chief investment officer at Orion, mentioned that Harris, perceived as a weaker candidate against Trump, could influence market dynamics. He said, “It could prove supportive of U.S. equities as Wall Street [begins] to contemplate and price in a fiscal policy backdrop that [features] both the extension of the Trump Tax Cuts and incremental government spending, particularly on the military.” Holland also noted that such a combination could stimulate the U.S. economy and corporate profits in the short to intermediate term, potentially pushing stock prices higher.
- However, he cautioned that accelerating economic growth could also drive inflation higher in the long term, forcing the Federal Reserve to pivot from expected rate cuts in 2024 to rate hikes in 2025 or 2026. Stephanie Vaughan, co-founder of Veda, also suggested that Biden dropping out of the race likely will have positive consequences for the U.S. equities market. She said, “Picking Kamala Harris would certainly create a situation in which Trump would be more likely to win. And Trump is clearly pro-growth and pro-innovation — both of which the American economy is sorely in need of now. Assets, therefore, would almost certainly benefit.”
Potential Benefits for Gold and Silver
- According to Peter Earle, senior economist at the American Institute for Economic Research, most reactions will depend on the specific candidate nominated. He mentioned that high uncertainty until the nomination could benefit gold and silver. Earle explained, “With uncertainty about who the candidate will be, investors will seek a safe haven until they can assess whether or not the replacement for Biden will continue or break from the high (and possibly higher) tax, more regulation, more government intervention policies of the Biden administration.”
- Until then, stores of value like gold and silver are likely to be sought out. Thompson echoed the sentiment, noting that the withdrawal of a sitting President from a reelection race is unprecedented and could lead to heightened fear and caution among investors. He added, “This could result in a more risk-averse market environment, with investors favoring safer, more stable investments over riskier stocks.”
Impact on Bonds
- Timothy Holland highlighted that bond markets might react to Biden’s withdrawal similarly to post-presidential debate movements. He said, “Post-presidential debate bond yields moved up and bond prices moved lower as Wall Street pondered the possibility of a Republican Election Day sweep and a likely extension of the Trump Tax Cuts and incremental government spending, particularly on the military.” If Biden’s most likely replacement is perceived to be a weaker candidate against Trump, a similar move in bond yields and bond prices could occur.
Impact on Cryptocurrency
- Stephanie Vaughan suggested that the crypto markets might see a rally following Biden’s dropout. She noted, “Most notably because a Trump presidency would be far more productive toward the crypto ecosystem as a whole.” The potential for a more favorable regulatory environment under a Trump administration could boost investor confidence in cryptocurrencies.
Conclusion
President Biden's withdrawal from the 2024 presidential race introduces significant uncertainties that are expected to impact various sectors of the stock market. Experts anticipate increased volatility as investors react to the political shift. While some sectors, such as U.S. equities, may benefit from a potential Trump presidency, others, like gold and silver, could serve as safe havens amid uncertainty. The bond and cryptocurrency markets are also likely to experience notable movements. As the political landscape evolves, investors will need to stay informed and agile to navigate the changing market conditions.