President Biden announced Sunday that he will not seek re-election in November, increasing uncertainty about who will take over the White House in 2025.
Stocks appeared to shrug off election concerns, with the S&P 500 rising more than 1% on Monday. Investors also gained clarity on the state of the Democratic ticket, with Biden joined by several prominent Democrats, Most notably, Honorary Speaker of the House Nancy Pelosi.in his endorsement of Vice President Kamala Harris as his running mate.
In a note to clients on Monday, Lori Calvasina, head of global equity strategy research at RBC Capital Markets, wrote that the news added “another curveball” for investors trying to figure out how political news will impact the stock market in 2024.
One of the main drivers of stocks recently has been investor confidence in who the next president will be. As betting markets have increased the odds that former President Donald Trump will win the November election, stocks have also risen. When the odds of Trump winning peaked around July 16, the S&P 500 hit its highest recent levels.
“If a change at the top of the ticket shifts the momentum of the White House race to the Democrats, the historical relationship suggests it could be fuel for a short-term pullback that may already be underway,” Calvasina wrote.
“If Trump can extend his lead, historical data suggests that stocks may avoid the pullback we were worried about. But that relationship likely won’t hold.”
Round Hill Investments CEO Dave Mazza expressed a similar sentiment in an interview with Yahoo Finance on Monday, noting that if a new Democratic candidate leads markets to expect a tighter presidential race, investors should expect “more volatility.”
Mazza added that the coming week in the markets could be “chaotic” in general, with the start of big tech earnings as well as economic growth and inflation readings, along with ongoing political unrest.
“The headlines in the near term will be about what happens in the presidential election,” Mazza said. “After that, investors will try to digest corporate earnings and then start looking at the Fed again.”
“I think it’s going to be a little bit volatile, but…what earnings ultimately bring will be the driver in the longer term, even if there are a lot of big economic headlines in the near term,” Mazza said.
As for how investors are starting to think about the possibility of a Trump-Harris showdown, Wall Street’s initial reaction suggests investors should remain in wait-and-see mode.
“We don’t think there’s much point in looking at (Harris’s) policy positions during the 2020 primaries, especially since she focused more on social issues than economic initiatives,” wrote Paul Ashworth, chief North America economist at Capital Economics.
Josh Schaffer is a reporter at Yahoo Finance. You can follow him on X @_Joshshafer.
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