Investors are bracing for a possible shift in the presidential race after President Joe Biden’s prime-time debate last week. The concern: an unknown quantity at the top of the Democratic ticket whether Biden will bow amid intense pressure from mega-donors and rank-and-file members of Congress.
“It’s very hard to avoid the fact that President Biden no longer seems viable in this election,” 22V Research’s Kim Wallace told me Friday on the Morning Brief (video above). “The way forward is controversial for the 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 seen the S&P 500 rise 15% this year, AGF Investments’ Greg Valliere warns that a new candidate on the ticket could signal “volatility, volatility, you name it” for a market in rally mode.
Potential candidates presented 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 could be viewed positively by a jittery market.
“If you operate under the view that markets don’t like uncertainty, there’s a case where Harris can be seen as a continuation of President Biden … there’s clarity from a policy perspective,” Pavlick said.
Pavlick added that Commerce Secretary Gina Raimondo — who has been at the center of major Biden legislation such as the CHIPS Act — is perceived positively by businesses and has the potential to win over Silicon Valley’s wealthy donor pool.
“A lot of businesses like it … and it’s definitely good for the semiconductor and technology sector,” Pavlick said.
Regardless of whether or not President Biden retires, investors should brace themselves for a bumpy ride in the coming months as professionals warn that uncertainty surrounding elections typically fuels heightened market volatility.
State Street senior global macro strategist Marvin Loh told me that political uncertainty, including the chances of another Democratic candidate, will be a driver of the tenure premium in the Treasury market. The term premium is the extra return investors expect to receive for holding long-term bonds instead of short-term bonds.
“You will have volatility in certain sectors that may benefit from one candidate’s policies versus another,” Loh explained.
But that added volatility may not show until the fall, when Election Day comes into focus.
Truist co-chief investment officer Keith Lerner pointed out in a recent note that volatility typically increases closer to Election Day.
“As investor anxiety mounts and uncertainty rises, market volatility tends to increase in October and then historically tends to recede once the winner is clear (regardless of who wins),” Lerner wrote.
While the outcome of the 2024 election is highly uncertain, one thing is clear: investors should be prepared to reexamine and adjust their investment portfolios to manage risk appropriately.
Investors are not yet ready to give up on AI trading in the face of renewed presidential election uncertainty, Goldman Sachs Asset Management portfolio manager Brook Dane told Yahoo Finance executive Brian Sozzi on his ‘Opening Bid’ podcast ‘. Listen below.
Opening offer List of Episodes
Sean Smith is an anchor on Yahoo Finance. Follow Smith on Twitter @SeanaNSmith. Advice on deals, mergers, activist situations or anything else? Email seanasmith@yahooinc.com.
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