Talks around President Joe Biden’s pulling out of the presidential race have been getting louder over the past few weeks — and are picking up speed in the past few days, which could impact the economy.
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There are now 20 House Democrats and two Senate Democrats who have publicly called for him to step down, as CBS reported. Meanwhile, privately, high-levels party leaders, such as former Speaker Nancy Pelosi (D-Calif.), Senate Majority Leader Chuck Schumer (D-N.Y.) and House Democratic Leader Hakeem Jeffries (N.Y.), have had conversation with the president, according to The Hill.
Further underscoring the increasing concerns, a new July 17 survey by the AP-NORC Center for Public Affairs Research, found that “seven in 10 adults, including 65% of Democrats, say he should withdraw and allow his party to select a different nominee.”
Against that backdrop, if Biden were to pull out of the race, there could be ramifications in the financial world, rippling through the markets.
Here’s a look at what experts had to say about it.
Immediate Reaction: Increased Volatility
Several experts argued that were Biden to exit, markets would react with a lot of volatility.
“If President Biden were to announce his withdrawal from the reelection race, the immediate market reaction would likely be one of volatility and uncertainty, said Josh Thompson, CEO, Impact Health USA. “Investors generally prefer stability and predictability, and such a significant political shift would disrupt both.”
According to him, the initial response could be a sharp decline in stock prices as investors seek to hedge against potential risks.
Michael Collins, CFA, founder and CEO, WinCap Financial, echoed the sentiment, saying that there could be increased uncertainty and volatility in the market due to a change in leadership, as a Biden withdrawal would almost guarantee a win for Trump.
“Investors may also react differently depending on who becomes the new frontrunner for the Democratic party and their perceived policies towards businesses and the economy,” he added.
“Could be Supportive of U.S. Equities”
Now, in terms of specific sectors, some experts argued that an exit could help U.S. equities.
“Were President Biden to leave the race and his most likely replacement perceived to be a weaker candidate against President Trump, it could prove supportive of U.S. equities as Wall Street began to contemplate and price in a fiscal policy backdrop that featured both the extension of the Trump Tax Cuts and incremental government spending, particularly on the military,” said Timothy Holland, CFA, Chief Investment Officer, Orion.
Holland also noted that such a combination could prove stimulative to the U.S. economy and corporate profits in the short to intermediate term, helping push stock prices higher.
“That said, accelerating economic growth could also push inflation higher longer-term, forcing the Fed to pivot from (the expected) rate cuts in 2024 to rate hikes in 2025 or 2026,” he added.
Stephanie Vaughan, co-founder of Veda, echoed the sentiment, saying that Biden dropping out of the race would likely have positive consequences for the U.S. equities market.
“I say this because such a scenario would mean that the Democrats would struggle to put together a coherent story for an alternative candidate to run against Trump,” said Vaughna. “Picking Kamala Harris would certainly create a situation in which Trump would be more likely to win. And Trump is clearly pro-growth and pro-innovation — both of which the American economy is sorely in need of now. Assets, therefore, would almost certainly benefit.”
Potentially Could Be Beneficial For Gold and Silver
According to Peter C. Earle, senior economist, American Institute for Economic Research, most of any reaction that comes will be based upon the specific candidate.
And as he argued, there will be high uncertainty until that individual is nominated and accepts the nomination, which tends to be good for gold and silver.
“With uncertainty about who the candidate will be, investors will seek a safe haven until they can assess whether or not the replacement for Biden will continue or break from the high (and possibly higher) tax, more regulation, more gov’t intervention policies of the Biden administration,” said Earle, adding that until that can be determined and more certainty garnered, stores of value are likely to be sought out.
Impact Health’s Thompson, echoed the sentiment,…
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