There is no way to know what will happen to the U.S. stock market if Vice President Joe Biden drops out of the 2024 presidential race. The only similar event in history is when Lyndon B. Johnson dropped out of the 1968 presidential race, but there are many more differences between now and then.
On the surface, this historical parallel looks good for stocks in case Biden does step down. The S&P 500 SPX closed 2.5% higher the next day after LBJ dropped out of the 1968 race on March 31, 1968. The U.S. market was also near its lowest point when Johnson pulled out. By the end of the year, the S&P 500 was 15.1% higher.
There are, however, many differences between 1968 and now that make it unlikely that the market would react the same way it did back then:
- Max Holland is a historian who has written, edited, or co-written six books mostly about the 1960s. He says that LBJ’s withdrawal was a big surprise, unlike what’s happening now. Holland said in an interview, “There are profound differences between LBJ’s withdrawal in 1968 and Joe Biden’s possible withdrawal from this year’s presidential race, even though there are some superficial similarities.” Aside from a small group of close friends and family, most people were surprised when LBJ withdrew. It wasn’t something that was widely talked about or expected. Today, on the other hand, the calls for Biden to stop campaigning are being made public.
- This is a good point made by Holland because one of the main features of efficient markets is that stock prices will already reflect a widely expected event. This means that the market won’t have much to react to when the event actually happens. So even if you thought that LBJ’s speech caused the big rise in the S&P 500, that doesn’t mean that the market would react the same way today.
- It wouldn’t be fair to say that LBJ’s withdrawal was the only reason the market went up. Johnson announced both his withdrawal and a partial end to U.S. bombing of North Vietnam at the same time. This policy, which caused a lot of disagreement in the U.S., was deeply unpopular with many people. You can’t separate the effects of that announcement from LBJ’s choice to step down.
- The way people feel about the stock market is another difference between 1968 and now. The Investors Intelligence Sentiment Index is the only measure of sentiment that I know of that goes back to the 1960s and stands for what I say. Before LBJ’s announcement, the most recent reading of that index showed that only 10.3% of those being watched were bullish, which is a very low percentage. As per contrarian analysis, a lot of people being negative about the future is a sign that the future will be positive, so the stock market’s good performance after LBJ’s announcement could be due to this reaction.
- My company keeps an eye on stock-market timers, and today, the number of people who are bullish is at or near an all-time high. Unlike when LBJ resigned in 1968, the current state of the stock market creates strong headwinds for the market going forward, which mutes any positive response the market might have had to Biden’s resignation.
The bottom line? Wall Street analysts love to quote Mark Twain’s famous line that even though history doesn’t repeat itself, it often rhymes. But in comparing LBJ to Biden in this case, there’s not much history with which the market could rhyme.
