Is he going to do it or not? It’s still unclear what will happen to Joe Biden as the Democratic nominee and maybe even as president for the rest of his term. Democrats are still calling for him to step down after his terrible performance in the June 27 TV debate.
In an interview with ABC News on Friday, Biden said that he would stay in the race and that only the “Lord Almighty” could get him to quit. However, Democrats in Congress and some major donors have asked him to think about whether he should stay in the race.
Most investors in the stock market have been able to handle the uncertainty. However, the bond market has been shook by the growing chance that challenger Donald Trump could win the election and return to the White House with Republicans controlling both the House and the Senate. That would make it possible for tax cuts to last for a long time and other steps to be taken that could make people worry about inflation again.
“There’s still a lot of doubt in politics while the president decides what to do with his campaign.” “For now, it looks like the stock markets are following the betting markets, which are following the first polls,” said Christopher Smart, managing director of the geopolitical risk practice Arbroath Group.
The RealClearPolitics average of the results of the most important polls showed that Trump’s lead over Biden grew from 1.5 percentage points before the debate to 3.3 percentage points after it.
“As the chances of a Trump victory rise, which could mean that the Republicans take over Congress, the chances of higher tariffs, bigger deficits, and fewer immigrants also rise.” And even if a second Trump administration can’t keep the big promises he made during the campaign, Smart said, the current path is inflationary and will make the Fed think twice about cutting rates next year.
The 10-year rate BX:TMUBMUSD10Y and the 30-year rate BX:TMUBMUSD30Y both went up by a total of 19.1 basis points and 21.6 basis points from June 28 to July 1. This was due to heavy selling in the two days after the debate, which caused yields on long-term U.S. government debt to reach their highest level in one month. Prices for debt and yields move in opposite directions.
After that, yields went down last week, but they are still higher than they were before the debate.
Of course, investors aren’t just interested in politics. The S&P 500 SPX hit its 34th record close of 2024 on Friday. This came after the June jobs report showed that the job market was slowing down, which made people more likely to think that the Federal Reserve could start cutting interest rates in September.
Analysts and commentators have said that it would be hard for Democrats to choose someone other than Vice President Kamala Harris, even though there is a lot of talk about who would replace Biden at the top of the ticket. But Biden stepping down as the nominee would also make people wonder if he is fit to stay in office as president.
People in the market don’t want to know what a Harris administration would be like because Harris would definitely say that the Biden administration would stay the same. “The more important question in the short term is whether Biden would be under a lot of pressure to step down as president in the meantime. Some Republicans have already said this,” said Rob Casey, partner at Signum Global Advisors, after Biden’s interview with ABC News on Friday. “What does that question mean for national security? It could scare markets before November.”
In the meantime, Terry Haines, founder of Pangaea Policy, warned investors in a Friday note not to put too much faith in bets based on how they think the election will turn out.
He said that prediction markets are like “funhouse mirrors” because they don’t reflect the odds of politics, especially when it comes to the presidency, which is decided by the Electoral College and not the popular vote. And “baskets” of shares are made based on which industries or sectors would do better or worse under a Biden or Trump presidency, as if policymaking were the president’s sole job.
Still, Haines said that investors should be ready for periods of volatility in the bigger picture.
“The unstable Biden situation has no upside for the markets, and that won’t change because Biden’s alertness will remain at the centre of the election and at the top of investors’ minds,” he wrote.
Investors don’t seem too worried about the possibility of a weak president and the resulting rise in U.S. political instability and geopolitical risk right now, but Haines wrote that things are more likely to change quickly and without warning, which would be bad for the markets.
