On Sunday, President Biden announced he will not seek re-election in November, adding to uncertainty about who will be in the White House in 2025.
Stocks appeared to shake off election concerns, with the S&P 500 up more than 1% on Monday. Investors also got clarity on the status of the Democratic ticket, as Biden was joined by several prominent Democrats. especially Speaker Emerita Nancy Pelosiby endorsing Vice President Kamala Harris as the candidate.
Lori Calvasina, head of global equity strategy research at RBC Capital Markets, wrote in a note to clients on Monday that the news adds “yet another curveball” for investors trying to digest how political news will impact the stock market in 2024.
A major driver for stocks lately has been investor confidence in who the next president will be. As odds in the betting markets that former President Donald Trump would win the November election rose, so did stocks. When Trump odds peaked around July 16, the S&P 500 reached its most recent high.
“If the change at the top of the ticket shifts momentum in the race for the White House back toward the Democrats, the historical relationship suggests it could fuel a short-term pushback that may already be underway,” wrote Calvasina.
“If Trump extends his lead, the historical data suggests stocks can avoid the pullback we worry about. But it is possible that this relationship will not last.”
Dave Mazza, CEO of Roundhill Investments, echoed a similar sentiment in an interview with Yahoo Finance on Monday, noting that if a new Democratic candidate prompts markets to expect a closer presidential race, investors should expect “more volatility.”
Mazza added that the week ahead could be “messy” in markets overall, with the start of Big Tech earnings and economic growth and inflation data all tying in with the ongoing political turmoil.
“The biggest headlines in the near term will be what happens with the presidential election,” Mazza said. “And then investors will try to absorb corporate profits and then look at the Fed again.
“I do think it will be a little bit volatile,” Mazza said, “but… where the gains come in will ultimately drive the longer term, even if there is a lot of macro news in the near term.”
As for how investors should start thinking about the possibility of a Trump-Harris showdown, Wall Street’s initial reaction showed that investors should remain in a wait-and-see mode.
‘We don’t think there is much mileage in trawling [Harris’s] policy positions during the 2020 primaries, especially as she focused more on social issues than economic initiatives,” wrote Paul Ashworth, chief North America economist at Capital Economics.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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