It’s a long time between now and November.
That’s the message from markets this morning, where Joe Biden’s decision to withdraw from the presidential race has reduced the aura of inevitability on the election’s outcome.
On PredictIt, the odds of Donald Trump recapturing the presidency have narrowed from as high as 70% last week to 60% this morning. And a basket of stocks that stands to benefit more from Democratic policy priorities (think infrastructure, renewable energy, beneficiaries of the Inflation Reduction Act, health and child care, social services, and entry level housing) is up 0.5% in early trading on Monday, while a basket of stocks that would purportedly stand to gain from Republicans’ electoral success are down a modest 0.2%.
“Perhaps for now it slightly reduces the impetus for Trump trades but there's a long way to go,” writes Deutsche Bank strategist Jim Reid on Biden’s withdrawal.
Of course, the election is hardly the only catalyst for markets, and, all in all, these aren’t major moves. The sessions following the debate and the attempted assassination of Trump saw much more stark outperformance of Republican-linked stocks versus their Democratic peers. Stocks in these cohorts will continue to be influenced by factors like their earnings results this reporting period and expectations surrounding the Federal Reserve, among others.
In the weeks ahead, investors will also be searching for any perceived daylight between Biden and Vice President Kamala Harris – the top candidate to lead the ticket – on policy, and what that might entail for different parts of the equity market. But a high deal of continuity appears likely.
“We dug into our files over the weekend and found a table we prepared in October 2019 comparing Biden, Harris, Warren, and Sanders on major policy items in the 2020 nomination process,” wrote RBC Capital Markets analysts led by Lori Calvasina, head of global equity strategy research. “At the time, Harris appeared to us to be a little tougher on Energy and Financials than Biden, but, like Biden, less onerous for Big Tech than Warren and Sanders.”
