Key points:

  • S&P 500 e-mini futures rose slightly after US President Joe Biden announced his withdrawal from the presidential race.
  • It is currently unclear how Biden’s departure will affect the markets as the Harris administration’s policies are unknown.
  • Small-cap stocks, financials, energy and cryptocurrencies could pull back slightly.

S&P 500 e-mini futures rose slightly on Sunday after US President Joe Biden announced his decision not to run for re-election and expressed support for Vice President Kamala Harris as the Democratic nominee against Republican Donald Trump.

S&P 500 e-mini shares were last up 0.1%. Biden, who has come under pressure from fellow Democrats to drop out of the race, has said he will remain president until his term ends in January 2025. Stocks rose last Monday as investors’ expectations of a Trump victory increased following a failed assassination attempt on him on July 13.

Elections and the stock market

US President Joe Biden ended his re-election campaign on Sunday after fellow Democrats lost faith in his mental ability to defeat Donald Trump, leaving the presidential race in an uncertain state. We may see a slight reversal in what has been working in the market over the past two weeks, especially in smaller cap stocks, but US traders expect the market to lose all of its gains.

It is currently unclear how Biden’s departure will affect markets, partly due to a lack of information about how a Kamala Harris administration will differ from a second Biden term in terms of economic policy.

But traders also fear that inflation issues and the Federal Reserve’s actions are becoming secondary to the potential disruption of a second Trump administration, given his unsustainable economic policies, tariffs and lack of interest in defending Taiwan. With it, the economy, markets and the international situation could find themselves in a state of complete chaos.

Unexpected uncertainty in the markets

Much will depend on who the party nominates as its vice presidential candidate, assuming Harris is Biden’s replacement. Nothing is certain at the moment, but the last few hours will help determine how the US stock market opens.

Even though traders make money from volatility, it is important that markets generally don’t like uncertainty. Investors expected short-term volatility to increase in November (the month of the election), but it is now arriving now. Elections are always an emotional event, but in markets over the long term, factors such as earnings will matter more.

If Biden had stayed, Trump and the Republicans would have been increasingly likely to win. Now the race is open again. Trading on expectations of a Trump victory is likely to take a breather as investors reassess the chances of the election outcome. This means small-cap stocks, financials, energy and cryptocurrencies could pull back a bit, although Trump still has the edge. Biden’s departure creates a new level of political uncertainty that could be a catalyst for market volatility.