President Joe Biden drops out

A week after an assassination attempt on Republican Donald Trump rattled investors, President Joe Biden announced on Sunday that he will not run for reelection, a few months after being declared the Democratic Party’s presumptive nominee and just weeks after a dismal debate showing. President Joe Biden has backed Vice President Kamala Harris to take over after he announced his withdrawal from the 2024 presidential race.

“It has been the greatest honor of my life to serve as your President,” the 81-year-old embattled commander-in-chief wrote in a remarkable letter that he addressed to “My Fellow Americans.”
“And while it has been my intention to seek reelection, I believe it is in the best interest of my party and the country for me to stand down and to focus solely on fulfilling my duties as President for the remainder of my term.”

The first debate against Donald Trump

Biden stumbled through a disastrous debate performance against Trump, prompting investors to rapidly downgrade his chances of winning the election. On average, he received a performance score of 1.99 out of 5, which was even lower than his already modest expectations score of 2.62 out of 5 among the same respondents.

Biden's debate performance seems to have heightened concerns about his age suitability for the presidency. We also polled respondents to rate the candidates' fitness for the office on a five-point scale. On average, likely voters (including both debate watchers and non-watchers) gave him a score of 2.23 out of 5 for physical fitness, down from 2.32 before the debate, and a score of 2.27 for mental fitness, down from 2.40. Former President Trump, the Republican nominee, sits well ahead in betting markets following Biden's debate performance last month and a surge in questions about his mental competence.

The failed assassination attempt on Donald Trump

There was the failed assassination attempt against Trump, which only deepened the sense among many in the market that he’d win in November. Many of Trump's supporters have placed the responsibility for his assassination attempt squarely on the Democratic party. They argue that Joe Biden depicted Trump as an autocrat who poses a danger to democracy. The Trump rally shooting has Republicans even more bullish about winning the full trifecta of federal government control: the presidency and both chambers of Congress. Republicans continue to accuse Joe Biden and the Democrats for the shooting incident. While many details are still unclear, one thing is certain: Trump's allies will capitalize politically on the incident to the fullest extent possible.

How will Biden dropping out affect the markets?

Biden's exit, on the other hand, introduces further complexity to a market already contending with potential Federal Reserve rate cuts, sluggish economic growth, and declining corporate earnings.

Tech stocks are particularly vulnerable, facing pressure from speculation about tariffs on exports to China and the ongoing shift towards companies focused on the domestic market, potentially benefiting from Trump's 'America First' trade agenda.

Forex

The dollar eased on Monday in the initial reaction to U.S. President Joe Biden's decision to end his reelection campaign, clearing the way for another Democrat to challenge Donald Trump.

China's yuan was largely unfazed by the central bank's decision to cut a key interest rate.
The U.S. currency slipped 0.08% to 157.38 yen early in the Asian day, while the euro gained 0.11% to $1.0895.

Stock

U.S. stocks are set to open higher on Monday, providing the initial response from the markets to President Joe Biden's announcement that he will not seek reelection and has endorsed Vice President Harris. Biden stated in a letter posted on X that he will step away from his reelection campaign to concentrate on his presidential responsibilities for the remainder of his term.

The markets responded calmly to the news, as S&P 500 stock futures inched up by 0.2%, and Nasdaq futures increased by 0.4%. Futures for 10-year Treasuries saw a slight rise of 2 ticks, while 10-year bond yields decreased by 1 basis point to 4.23%.

Investors react to Biden pulling out of presidential race

Financial markets are bracing for a potentially volatile Monday following US President Joe Biden's unexpected announcement on Sunday afternoon US East Coast time that he will not seek reelection in the upcoming November US election.

Investors have been steadily betting on Donald Trump's return to the White House for weeks, adjusting their portfolios by reducing positions in long-term US bonds and increasing investments in Bitcoin, among other assets. With Joe Biden's withdrawal from the race, they are now evaluating whether this enhances the prospects of a Democrat victory and how they need to readjust their strategies accordingly.

JAMIE COX, MANAGING PARTNER, HARRIS FINANCIAL GROUP, RICHMOND, VA:
“The question of who is going to be the nominee is going to re-enter investors' minds in a very big way.”
“Markets are going to be terribly volatile until the Democrat nominee is known. That will likely manifest itself through the dollar, creating volatility in fixed income and equities.”

JACK MCINTYRE, PORTFOLIO MANAGER, GLOBAL FIXED INCOME, BRANDYWINE GLOBAL INVESTMENT MANAGEMENT:
"I think overall this is going to be at least temporarily positive for markets...It's probably going to be a positive for the bond market, especially given just where we are in the business cycle and more importantly, where we are with growth, inflation.
“I suspect that if this moves us toward getting divided government, that is a positive for the market.”

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