Biden’s Exit Puts Financial Advisors on Alert
Market watchers are scrambling to predict the potential impact of Kamala Harris.
President Joe Biden’s announcement over the weekend to abandon his reelection efforts has introduced another twist to an already unprecedented election cycle that includes an assassination attempt on presumptive Republican nominee Donald Trump.
For financial advisors and investors, this all adds up to potential uncertainty, which is never welcome in financial markets, although markets were slightly positive during the first trading day following Biden’s announcement.
“Until the ballots have been counted and litigated, expect the market to go to greater extremes than before,” said Leibel Sternbach, founder of Yields4U, a Melville, N.Y.-based financial planning firm.
“Biden dropping out of the race will ratchet up the uncertainty related to who the next president will be and what will their agenda be, and whether it will be inflationary,” he added. “These are big issues that are up for grabs in this election.”
Prior to Biden’s announcement, which followed weeks of the Democratic party pressuring the president to step aside, Trump was gaining ground as the favorite to win back the White House. Markets have remained calm during this period and were in positive territory in Monday midday trading.
How investors react to a new nominee, which seems likely to be Vice President Kamala Harris, remains uncertain. The Democratic National Convention begins Aug. 13.
Market Volatility in 1968
Chuck Etzweiler, chief research officer at Nepsis in Minneapolis, cited as a guide the March 31, 1968 announcement by then-President Lyndon Johnson, which was the last time an incumbent president didn’t run for a second term.
Not only did Johnson’s 1968 announcement mark the low point for the S&P 500 that year, but the index climbed 15% over the next nine months.
“If V.P. Harris is the nominee, she will likely campaign on the economic policies of her predecessor just like Hubert Humphrey did for LBJ,” Etzweiler said. “The key here is there are little unknowns and that is appealing to investors.”
Stephen Kolano, chief investment officer at Integrated Partners in Waltham, Mass., is also looking for as much certainty as possible following Biden’s exit from the campaign.
“Right now, it seems like Harris is the likely candidate, but it is not 100% certain as other names are still being floated around,” he said. “While the probability of a Republican victory has decreased since Biden’s withdrawal, the probability still favors President Trump.”
Meanwhile, Paul Schatz, president of Heritage Capital in Woodbridge, Conn., sees Harris trying to “distance herself from Biden’s most unpopular policies.”
“If her campaign is smart, they will jog her to the center a little, which the markets will like,” he added. “It will be interesting to see if the massive asset allocation shift away from mega-cap tech and into small and mid-caps continues.”