Following the news that President Biden is stepping down as Democrat nominee for November’s Presidential election, Lindsay James, investment strategist at Quilter Investors has taken a look at market reactions:
She said: “News that President Biden has taken the chance for a dignified exit from the election campaign will be music to the ears of many Democrats, but perhaps less so to Donald Trump who will likely see a new challenger as a greater threat than President Biden was in recent months. This will be especially the case with Kamala Harris who represents a continuity with the Biden administration, but brings about a different style.
“Markets have been increasingly pricing in a Trump victory in November, with smaller companies buoyed by expectations for broad import tariffs as well as the growing likelihood of a rate cut as early as September. J.D Vance as Trump’s Vice-Presidential choice has been a divisive one, given he is a man known for wanting to tighten regulation on banks whilst loosening it for cryptocurrency trading. Much will depend on whether the Democrats can unify quickly around a new candidate, just four months ahead of the election, and whether that candidate can win over the swing states at a time when Trump clearly has the momentum. Whilst it will remain an uphill struggle, this has opened up the race once again, with the age of candidates likely to remain a bone of contention but one that would now favour the Democrats.
“Markets will be unlikely to reverse the recent rotation for now given the signal for rate cuts is unchanged and it is still Trump’s election to lose. However, this news brings uncertainty and potential instability which investors crave more than anything. This news does make a Trump sweep somewhat less of a foregone conclusion and as such we should expect some volatility over the next four months. For now, however, the expectations of rate cuts will remain the driving force for market returns, rather than a noisy election campaign. Trump is favoured but if Kamala Harris, or another nominee, makes inroads then the recent rotation may lose legs and that volatility could take over.”
