President Biden’s decision Sunday to step down as the Democratic presidential candidate and not seek reelection — just one week after his Republican challenger, former President Donald Trump, survived an assassination attempt — will likely add new uncertainties to the market and create a picture of confusion for investors, asset managers and other stakeholders said.
Connecticut State Treasurer Erick Russell, who administers the $55.7 billion Connecticut Retirement Plans and Trust Funds, heaped praise on Biden and described his move to relinquish his post as a “selfless act of public service.”
“Throughout his career, [Biden] has consistently put the needs of the American people, particularly working families, above the politics of the moment,” Russell said in a statement Sunday.
David Bahnsen, CIO of The Bahnsen Group, said Biden’s dropping out of the race will add to uncertainty for investors.
“While markets were well aware for some time that candidate Trump maintained a comfortable lead over President Biden, markets were also aware that there was some possibility that Biden would drop out of the race,” Bahnsen said. “The race now could tighten to a point of greater unpredictability and uncertainty because there is ample reason to believe that Trump’s lead was due to the vulnerabilities of his now former opponent.”
Bahnsen also said much would depend upon how well Vice President Kamala Harris, Biden’s presumptive successor as the Democratic candidate, can solidify support among party officials.
“She will end up being the [Democratic] nominee, but it’s possible that there is splintering and division within the party,” he said. “If Harris is successful in fundraising and attracting energy and unity in the party, it increases the odds of a Trump loss, as candidate Trump has a devout following but an unquestionably low ceiling.”
By “low ceiling,” Bahnsen means that it’s highly unlikely that Trump can attract voters outside his core base, he explained.
The markets have already priced in a slight Republican majority in the Senate, which is likely, Bahnsen said, and that “will calm any negative market impact from a potential Harris win.”
John Delaney, senior investments director and portfolio manager at Willis Towers Watson, said the timing of Biden’s decision to remove himself from the race adds a “further uncertain element to what was already going to be an interesting second half of the year.”
Aside from the political uncertainty, the market is also focused on potential Federal Reserve actions as they relate to interest rates in the second half of the year, with the market still pricing in a potential cut before the end of 2024.
“The combination of these two things creates potential for a volatile second half of 2024 in terms of market returns and expectations,” Delaney said.
Julie Biel, chief market strategist and portfolio manager at $65 billion Kayne Anderson Rudnick, recommended against investors making any large-scale changes to their positioning based on the Biden news “because what we have added is more variables, not fewer.”
Rather, she suggests that “owning quality companies who can adapt regardless of party politics is probably a better focus.”
However, Bahnsen also said he does not think the presidential election currently ranks among investors’ top three priorities, citing that corporate earnings, the Federal Reserve and geopolitics are a “bigger driver of markets.” Bahnsen Group is an investment management firm based in Newport Beach, California, with $5.5 billion in assets under management.
James Pruskowski, chief investment officer at 16Rock Asset Management, said it has been almost 60 years since markets have faced an incumbent withdrawing from a presidential race, with President Lyndon B. Johnson the last to do so in 1968.
“Treasuries are inching higher, as the market has new reason to assign lower odds of a Republican sweep heading into the Democratic convention, despite the party's commanding lead,” he said. “Political risk will be a key underlying factor leading up to the election, making it prudent to be long some duration and volatility now.”
16Rock Asset Management has $233 million in assets under management.
Greg Valliere, chief U.S. policy strategist at AGF Investments, spoke favorably about Harris’ chances to secure the White House.
“Getting to 270 electoral votes will be an uphill fight,” he wrote in a July 22 note. “But in this year of electrifying surprises, Harris has a chance. Harris gives the Democrats a lightning bolt of energy and crucial momentum against Donald Trump.”
Valliere cautioned, however, that Harris might be vulnerable on the issue of illegal immigration and the southern border.
“For now, we’ll simply note that the Democrats’ prospects have improved against Trump, who is 78 and looks it,” he said. “He’s suddenly the old-timer in this race. We have a hunch that Harris will show the energy and personality to make this a close race. A [Trump] landslide looked likely a week ago, but the outcome is far from certain now, as the Democrats finally have the enthusiasm to make Kamala Harris a serious challenger.”
AGF Investments is a unit of the Canadian asset manager AGF Management Ltd., which has C$46.1 billion ($33.8 billion) in assets under management.
But Skyler Weinand, chief investment officer at Regan Capital, with $1.5 billion in assets, is less sanguine about Harris.
“We don’t think Vice President Harris has enough time to present her agenda to the people and move the odds away from Trump in any meaningful fashion,” he said. “Four more years of Trump in the White House should bring further deficit spending and create a tug-of-war between the Treasury and the Fed to stimulate the economy and keep inflation under control.”
While that may mean a few rate cuts are in store over the next six months, Weinand said, it will be “difficult to control longer term interest rates from rising and exerting pressure on the market.”