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Biden’s misstep against Trump could spark uncertainty on stock markets

Investors are bracing for a potential shakeup in the presidential race after President Joe Biden stumbled during last week’s prime-time debate. The concern is that if Biden drops out under intense pressure from big donors and rank-and-file members of Congress, the Democratic frontrunners will face an unknown.

“It’s very hard to ignore the fact that President Biden is out of a chance in this election,” Kim Wallace of 22V Research told me in Friday’s Morning Brief (video above). “The path forward is moot for Democrats. Realistically, there’s absolutely no way to do this smoothly, but they have work to do and they know it.”

Greg Valliere of AGF Investments warns investors who have watched the S&P 500 rise 15 percent this year that a new candidate on the ballot could be a sign of “volatility, instability, whatever” in a market in rally mode.

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

Steve Pavlick of Renaissance Macro told me that Vice President Kamala Harris and Commerce Secretary Gina Raimondo are among the names that may be viewed favorably in a nervous market.

“If you assume that markets don’t like uncertainty, you can look at Harris as a continuation of President Biden … from a policy perspective, there is clarity,” Pavlick said.

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

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

Pavlick added that Commerce Secretary Gina Raimondo – who played a key role in Biden’s key legislation, such as the CHIPS Act – is viewed positively by the business community and has the potential to win over Silicon Valley’s wealthy donor pool.

“A lot of companies like it … and it’s obviously good for the semiconductor and technology industries,” Pavlick said.

Regardless of whether President Biden resigns or not, investors should prepare for a bumpy ride in the coming months, as experts warn that uncertainty surrounding the election typically leads to increased market volatility.

Marvin Loh, senior global macro strategist at State Street, told me that political uncertainty, including the chances of another Democratic candidate, will be a driver of the term premium in the Treasury market. The term premium is the additional yield investors expect from holding longer-term bonds rather than shorter-term bonds.

“There will be volatility in certain sectors that could benefit from the policies of one candidate versus another,” Loh explained.

However, this additional volatility is not likely to occur until the fall, as election day approaches.

Keith Lerner, co-chief investment officer at Truist, emphasized in a recent note that volatility typically increases shortly before Election Day.

“As investor fear increases and uncertainty grows, market volatility tends to rise in October and then historically tends to decline 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 review and adjust their investment portfolios to appropriately manage risk.

Given the new uncertainties surrounding the presidential election, investors aren’t ready to throw in the towel when it comes to AI trading, Brook Dane, portfolio manager at Goldman Sachs Asset Management, told Brian Sozzi, executive at Yahoo Finance, on his podcast “Opening Bid.” Listen below.

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Opening bid Episode list

Sarah Smith is a moderator at Yahoo Finance. Follow Smith on Twitter @SeanaNSmith. Tips on deals, mergers, activist situations or other topics? Email [email protected].

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