Biden Drops Out Of Presidential Race: What It Means For Stocks

(MENAFN- ValueWalk) How the stunning news that Joe Biden will not seek reelection could impact the stock market.

The news that President Joe Biden will not seek reelection stopped most people in their tracks on a Sunday afternoon. It puts the presidential race in a state of flux like we haven't seen since 1968 and investors may be wondering what it all means for stocks.

In the immediate aftermath, Stocks were rising on Monday morning. The S&P 500 jumped 0.7%, while the nasdaq Composite had the biggest jump, up 1.3%. The Dow Jones Industrial Average was flat, while the Russell 2000 gained 0.5% in early trading.

But just what does that mean for stocks ? Let's take a look.

Since the disastrous debate for Biden on June 27, Republican nominee Donald Trump had been moving steadily ahead in the race as offshore betting sites had Trump as the prohibitive favorite over Biden, with average odds of -150 versus +375 for Biden.

Polls also had Trump beating Biden, although the margin had varied. A recent CBS News/YouGov poll had Trump up 52% to 47%, yet a Fox News poll had it 49% to 48% in favor of Trump while an NPR/PBS poll had Biden leading 50% to 48%.

After Biden dropped out Sunday, Vice President Kamala Harris saw her odds increase dramatically, even better than Biden's, at about +200 according to BetOnline, while Trump' odds dropped to -200.

While new polling since Biden dropped out is not yet available, before Biden's announcement, Harris was polling better against Trump in the CBS News/YouGov poll, trailing 51% to 48%, and about the same as Biden in the others.

But this was before Biden left the race and she became the front runner. It appears that with Biden out, the race will be a total reset, which should be better for Democrats , as Biden had been trending downward.

The fact that the Nasdaq was the biggest mover on Monday, up 232 points, or 1.3% as of 10:00 a.m. ET could be construed as a vote of confidence in Harris as the candidate, over Biden. The Biden Administration, through the CHIPS and Science Act, among other initiatives, has invested heavily in technology, so markets may view Harris as a better option than Biden to win.

Also, the tech rally could signal renewed confidence in interest rates dropping, as a group of 16 Nobel Prize-winning economists wrote in late June that Trump's policy could“reignite” inflation higher.

The other telltale sign of the Biden announcement shaking up markets is the price of Bitcoin was down some 1.71%, or more than $1,000 per share, on Monday. The crypto market had been rising lately as the chances of a Trump victory improved, with Trump viewed as being more favorable the crypto market.

“What has been interesting has been crypto. It's like the Trump barometer and that is off slightly. So that does suggest that, potentially, there is a little bit more of a challenge presented from Kamala Harris,” Fiona Cincotta, senior market analyst at City Index, said, reported Reuters .

But these are simply near-term reactions. Until the Democrats have confirmed a candidate, likely Harris, to replace Biden, analysts' say we should expect volatility. And even then, it should continue until Election Day.

“For starters, markets don't like uncertainty, and some of the strength in risk assets through the summer was likely due to the increased likelihood of a Republican sweep. We wouldn't be surprised to see more turbulence as the presidential race evolves,” Elyse Ausenbaugh, global investment strategist at JPMorgan Chase , said.

CBOEʻs Volatilty Index, or VIX, was down 5% on Monday, to 15.70, but it is still at its highest point since April when it hit 19% and the markets were down that month.

For now, Ausenbaugh encouraged investors to focus on what probably stays the same no matter who is in office, citing stocks related to security (energy, cyber, supply chain and traditional defense) and infrastructure. She said,“investing in the resulting infrastructure build is one of our highest conviction ideas.”

Also, analysts caution investors not to get too caught up in the presidential election machinations, because there are other factors that will determine the path of stocks.

“Right now, the markets have already priced-in a slight Republican majority in the Senate, which is very likely, and that will calm any negative market impact from a potential Harris win. The election is not in the top three priorities in terms of market considerations, as earnings, Federal Reserve, and geopolitics are a bigger driver of markets,” David Bahnsen, founder and chief investment officer of the Bahnsen Group, told US News and World Report .

To that point, this will be a big week for tech earnings and inflation, as the Person Consumption Expenditures report comes out Friday.

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