Examining the Market Impacts of Thursday’s Debate (What Happens If Biden’s Replaced?)
Thursday’s debate has shaken up the presidential race, as President Biden’s struggles have resulted in calls from Democrats to have him replaced as the nominee, while the night’s events have moved the polls. While the November election is still a ways away, I did want to briefly cover the new political landscape following the debate so that we can 1) Confidently explain this to clients and prospects and 2) Understand what this means for markets and policies.
Before getting into the consequences emanating from Thursday night, I did want to first update you on where things stood in the polls prior to the debate. According to RealClearPolitics.com, on Wednesday and Thursday Trump held a three-point and four-point lead according to the latest NY Times/ Sienna poll, and a four- and six-point lead according to the latest Quinnipiac poll. Those are national polls, and it’s reasonable to assume those leads will increase following the debate. So, while there is still a lot of time left, Trump’s chances of winning in November have increased following the debate.
In response to the debate performance and setback in Biden’s re-election chances, there have been calls to replace the president as the Democratic nominee, not just by fringe party members but by current Democratic lawmakers. However, while that’s possible, it is unlikely. And if it were to happen, here’s how it would go. President Biden has already secured 99% of the delegates through the primary elections. But these delegates have just pledged to vote for Biden to be the nominee, the actual vote hasn’t happened yet.
If Biden were to step down (or be removed) the Democratic Party would need to 1) Choose a successor and 2) Have the pledged Biden delegates vote for this successor before either August 7 (that’s a tentative ballot deadline in Ohio) or at the Democratic convention on August 19 (if Ohio extends the ballot deadline). Importantly, if the Democrats are going to make a change, they need to do it before August 19. After the convention, presidential ballots may already be printed in several states, making the chances of victory for any successor much more difficult.
If the Democrats do make a change, there are four potential replacements that appear to be in the running: Vice President Harris, Illinois Governor Pritzker, Michigan Governor Whitmer and California Governor Newsom. Notably, the limited polling that was done on a theoretical match up between those candidates vs. former President Trump also result in a close election. Point being, while the polls are dated and need to be refreshed, these replacement candidates did not materially alter the outlook for the election (although that may change).
For all the concern emanating from the Democratic camp, as of now, it’s unlikely Biden is replaced. Prior to the debate, betting sites Bet365 and Sky Bet had Newsom (who seems to be the favorite if there is a change) at just a 4% chance of winning. On Friday, that rose to around 15%, a notable increase but far from substantial. Predict-It, meanwhile, had Biden at an 86% chance to be the Democratic nominee before the debate, but that had fallen to 58% on Sunday. Harris was given a 20% chance, while Newsom had a 17% chance.
Bottom line, the debate performance did alter the election outlook positively for Trump and the calls for Biden to step down as nominee are real and substantial. That said, it remains unlikely Biden will do that for several reasons, including 1) The replacement candidates don’t poll substantially better vs. Trump, so it doesn’t increase chances of Democrats winning in November and 2) It’s a complicated logistical and procedural process that can be done, but not easily.
From a market standpoint, this turn of events is being viewed favorably, for now, as Republicans are generally considered “better” for the markets given their probusiness, pro-growth platform. However, I would caution against getting too bulled up on the idea of a Trump victory. First, it’s a long way until November and a lot of strange things can happen. Second, Trump is not a typical Republican.
While markets performed well during his first term, he is touting substantial tariffs and trade restrictions that will inject uncertainty back into markets. Bottom line, Trump may be president and he may be positive for the markets, but it’s much too early to implement an investing strategy based on the expectation of a Trump victory. There’s simply too much time and too many unknowns.
Bottom line, I would not chase a “Trump will win” market rally. What happens with growth and Fed rate cuts is much more important near term than who wins (or even runs) in November. But as we get closer to the election, and Trump is the clear winner, I will adjust the portfolios to reflect that.
"This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. The information does not represent, warrant or imply that services, strategies or methods of analysis offered can or will predict future results, identify market tops or bottoms or insulate investors from losses. Past performance is not a guarantee of future results. Investors should always consult their financial advisor before acting on any information contained in this newsletter. The information provided is for illustrative purposes only. The opinions expressed are those of the author(s) and not necessarily those of Geneos Wealth Management, Inc."