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Since Joe Biden’s poor performance in the debate a few weeks ago, questions have been swirling in Washington about whether he should withdraw from the presidential candidacy.
Yet while the issue has been hotly debated on television political stations and in newspaper editorial pages, the stock market has barely reacted — a reaction not uncommon, but somewhat puzzling, given the unusual nature of this election in many ways.
The S&P 500 has risen by about 2% since President Biden took a lot of flak during the debate on June 27. Additionally, the VIX index, which measures volatility and acts as a kind of barometer to gauge the mood of the stock market, has barely budged.
In fact, if you use July 9 as the midpoint of this year’s election, as Bespoke Investment Group did in a recent analysis, you’ll find that the VIX was the lowest in a presidential election year since 1992.
There are a number of possible reasons why stock prices are sluggish amid all the politicians’ noise.
1: Do investors see the race as a win-win? If Biden stays in the race and is re-elected, it could mean a continuation of the status quo in a year in which the S&P 500 index hit 37 all-time highs as of Wednesday’s close. If Donald Trump wins, his presidency could be characterized by deregulation, which some CEOs would welcome.
Of course, when Trump was first elected president, the stock market crashed, but then recovered and rose. It’s hard for investors to accurately predict the actual impact of a president on the economy and the markets. (And, as our own Rick Newman has written, the president’s economic power is often exaggerated in any case.)
2: Debates don’t affect election outcomes. Some political analyses have found that voters’ preferences don’t change after debates.
3: It might be a timing issue. The election is four months away. As Bespoke wrote in a client note, “While the VIX is currently low, it could very well rise heading into the election. Since 1990, the median maximum increase in the VIX in the four months after July 9th has been 8.9 points, while in election years the median increase in the following four months has been 13.1 points.”
That means there’s still plenty of time for election fears to spill over into stock prices.
Bespoke’s Paul Hickey will be on Yahoo Finance on Thursday at 4pm.
Julie Hyman is Yahoo Finance Live, weekdays 9am-11am ETFollow us on Twitter Jules Cimentand read Her other stories.
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