Investors are bracing for a possible presidential election upheaval following President Joe Biden’s prime-time debate gaffe last week.The worry is that there are a number of unknowns at the top of the Democratic field if Biden withdraws under intense pressure from big donors and rank-and-file lawmakers.
“It’s very hard to avoid the fact that President Biden is no longer a favorite in this election,” Kim Wallace of 22V Research told me in Friday’s Morning Brief (video above). “The path forward is up for debate for Democrats. Realistically, there’s just no way this is going to go smoothly, but they have a job to do, and they know it.”
For investors who have watched the S&P 500 soar 15% this year, Greg Valliere of AGF Investments warns that a new candidate entering the presidential race could bring “volatility, instability and all sorts of other things” to a buoyant market.
Candidates named by sources to Yahoo Finance include California Governor Gavin Newsom, Michigan Governor Gretchen Whitmer, Pennsylvania Governor Josh Shapiro, Commerce Secretary Gina Raimondo and former Secretary of State Hillary Clinton.
Among the names being discussed, Vice President Kamala Harris and Commerce Secretary Gina Raimondo are ones that could be well-received by nervous markets, Steve Pavlick of Renaissance Macro told me.
“If we act on the view that markets don’t like uncertainty, Harris could be seen as a continuation of Biden’s presidency … it’s clear from a policy perspective,” Pavlik said.
Pavlick added that Commerce Secretary Gina Raimondo, who has played a key role in Biden’s major bills such as the CHIPS Act, is well-liked by businesses and could garner support from Silicon Valley’s wealthy donor base.
“A lot of companies like her … and she’s obviously a good fit for the semiconductor and technology sector,” Pavlick said.
Whether Biden leaves office or not, experts have warned that uncertainty surrounding an election typically leads to increased market volatility, and investors should prepare for volatile months ahead.
Marvin Lo, senior global macro strategist at State Street, said political uncertainty, such as the chances of Democratic candidates being re-elected, is driving the term premium in the Treasury market, which is the extra return investors expect to get by holding longer-term bonds instead of shorter-term ones.
“There will be instability in certain areas where one candidate’s policies may benefit more than the policies of another candidate,” Lo explained.
But that increased volatility may not emerge until the fall, closer to Election Day.
Truist co-chief investment officer Keith Lerner wrote in a recent note that volatility typically increases as Election Day approaches.
“Market volatility tends to spike in October as investor fears rise and uncertainty mounts, then volatility tends to subside once the winner historically becomes clear (regardless of who wins),” Learner wrote.
While the outcome of the 2024 election is highly uncertain, one thing is clear: investors should be prepared to reexamine and adjust their investment portfolios to appropriately manage risk.
Investors aren’t ready to give up on AI trading just yet, even in the face of new uncertainty from the presidential election, Goldman Sachs Asset Management portfolio manager Brooke Dane said on Yahoo Finance executive Brian Sozzi’s podcast “The Opening Bid,” which you can listen to below.
Starting Bid Episode List
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