Debate fallout: Biden's stumble against Trump may ignite stock market uncertainty

06/30/2024 20:42

The market is bracing for a potential shakeup in the presidential race following President Biden’s debate stumble against former President Trump.

Investors are bracing for a potential shakeup in the presidential race following President Joe Biden’s prime-time debate stumble last week. The concern: an unknown quantity atop the Democratic ticket should Biden bow out amid intense pressure from mega-donors and rank-and-file members of Congress.

"It’s very difficult to avoid the fact that President Biden no longer seems viable in this election," 22V Research’s Kim Wallace told me Friday on Morning Brief (video above). "The way forward is contentious for Democrats. Realistically, there is absolutely no way to do this smoothly, but they have work to do and they know it."

For investors who have watched the S&P 500 surge 15% this year, AGF Investments’ Greg Valliere warns a new candidate on the ticket could signal "volatility, instability, you name it" for a market in rally mode.

Potential candidates floated to Yahoo Finance by sources include California Gov. Gavin Newsom, Michigan Gov. Gretchen Whitmer, Pennsylvania Gov. Josh Shapiro, Commerce Secretary Gina Raimondo, and former Secretary of State Hillary Clinton.

Of the names being discussed, Renaissance Macro’s Steve Pavlick told me that Vice President Kamala Harris and Commerce Secretary Gina Raimondo are among the names that may be viewed favorably by a nervous market.

"If you operate under the view that markets don’t like uncertainty, there’s a case where Harris could be viewed as a continuation of President Biden… there’s clarity from a policy perspective," Pavlick said.

Vice President Kamala Harris speaks during a post debate campaign rally, Friday, June 28, 2024, in Las Vegas. (AP Photo/Ronda Churchill) (ASSOCIATED PRESS)

Pavlick added Commerce Secretary Gina Raimondo — who has been front and center on key Biden legislation such as the CHIPS Act— is perceived positively by businesses, and has the potential to win over the wealthy Silicon Valley donor pool.

"A lot of businesses like her… and she’s obviously good for semiconductors and the tech sector," Pavlick said.

Regardless of whether or not President Biden steps aside, investors should brace for a bumpy ride in the coming months as pros warn uncertainty surrounding the election usually spurs heightened market volatility.

State Street’s senior global macro strategist Marvin Loh told me political uncertainty, including the chances of another Democratic candidate, will be a driver of term premium in the Treasury market. Term premium is the additional return that investors expect to receive for holding longer-term bonds rather than shorter-term bonds.

"You're going to get volatility in certain sectors that might benefit from one candidate’s policies versus another," Loh explained.

But that added volatility might not appear until the fall as Election Day comes into focus.

Truist’s co-chief investment officer Keith Lerner highlighted in a recent note that volatility typically picks up closer to Election Day.

"As investor anxiety builds and uncertainty heightens, market volatility tends to spike in October, and then historically tends to recede once there is clarity on the winner (regardless of who wins)," Lerner wrote.

While the outcome of the 2024 election is highly uncertain, one thing is clear: investors should prepare to reexamine and adjust their investment portfolios to manage risk appropriately.

Investors are not yet ready to throw in the towel on the AI trade in the face of fresh presidential election uncertainty, Goldman Sachs Asset Management portfolio manager Brook Dane told Yahoo Finance Executive Brian Sozzi on his 'Opening Bid' podcast. Listen in below.

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Seana Smith is an anchor at Yahoo Finance. Follow Smith on Twitter @SeanaNSmith. Tips on deals, mergers, activist situations, or anything else? Email [email protected].

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