Faced with increasing calls from within his party and influential supporters, President Joe Biden has officially stepped down from his re-election bid for 2024. With Vice President Kamala Harris stepping into the spotlight, the markets are preparing for potential shifts in economic policy and investor sentiment.

Following the Money

The so-called Trump-trade, which anticipates former President Donald Trump's tax policies boosting corporate profits, had recently gained traction. Cameron Dawson, CIO of NewEdge Wealth, notes that Biden's departure "takes some of the wind out of the sails of the Trump Trade," adding uncertainty to the Republican victory scenario.

Renewable energy stocks are poised to benefit from current deputy president Harris's anticipated focus on green initiatives. Conversely, healthcare stocks might experience increased volatility due to future policy uncertainties. Technology stocks, which have performed robustly under Biden, are likely to maintain their momentum given ongoing digitalization trends. 

Market Reaction to Recent Political Volatility

News of Biden's potential stepping down had already started to cause market fluctuations, and the Trump assassination attempt further added to the volatility. Long-dated Treasury yields, which move inversely to prices, briefly rose on increased expectations of a Trump victory following Biden's debate performance and the assassination attempt. 

The stock market has shown varied responses, particularly in sectors tied to fiscal policy changes. Small-cap equities and cryptocurrencies rallied on inflation bets, while the Cboe Volatility Index, Wall Street's "fear gauge," reached its highest level since April, indicating increased investor anxiety.

Just the Beginning?

Early polls suggest tight competition between Republicans and Democrats, with significant implications for fiscal policies and market regulations. A Reuters/Ipsos poll indicates Trump holds a marginal lead among registered voters, intensifying the political stakes.

Many investors see the prospect of a divided government, where Republicans control the House and Democrats the Senate, as a potential stabilizing factor. Jamie Cox of Harris Financial Group suggests that a divided Congress could prevent extreme policy shifts, thus maintaining market stability. Jack McIntyre from Brandywine Global Investment Management agrees, noting that a balanced government would likely be beneficial for market conditions.

Market volatility is expected to rise due to the heightened political uncertainty. Gina Bolvin, president of Bolvin Wealth Management Group, points out that Biden's exit introduces "a whole new level of political uncertainty," which could lead to overdue market fluctuations.