A week after the attempted assassination of Donald Trump, President Joe Biden has chosen to exit the 2024 presidential race, throwing his support behind Vice President Kamala Harris as the Democratic Party’s candidate.
This political shift, alongside anticipated rate cuts from the Federal Reserve in September, has made investors more cautious, contributing to growing market uncertainties and potential risk-averse behaviours.
Despite these concerns, US stocks rebounded on Monday, recovering some losses from their worst week since April.
Early trading saw the S&P 500 rise by 0.7%, the Dow Jones Industrial Average increase by 167 points (or 0.4%), and the Nasdaq composite climbed by 1.1%. Big Tech stocks like Nvidia, which had previously tumbled due to valuation concerns, helped drive this recovery.
Treasury yields remained stable in the bond market following Biden’s announcement to forgo re-election. The week also promises activity with major US and European companies, such as Tesla, Microsoft, and LVMH, releasing their second-quarter earnings.
Sector-wise, fossil fuel companies like Baker Hughes, Exxon Mobil, and Occidental Petroleum might see gains, with European firms such as BP and Shell expected to follow suit.
Banking stocks, especially those like Goldman Sachs and Morgan Stanley with investment banking exposure, may benefit from potential deregulations under a Trump administration. Additionally, the healthcare sector could thrive with possible policy boosts for private insurance, and consumer stocks might gain from Trump’s tax cut proposals.
However, renewable energy firms and electric vehicle manufacturers could face setbacks due to Trump’s anti-climate policies, affecting companies such as Tesla, Rivian, and Lucid, and European renewable energy firms like Iberdrola, National Grid, and TotalEnergies.
Commodity prices, including metals and energy, were volatile on Monday due to fluctuations in the US dollar during the Asian session. Gold, silver, copper, crude oil, and natural gas initially rose but later pulled back as investors assessed the market’s reaction to the dollar.
It remains too soon to declare an end to the downtrend, especially with the potential for a renewed US-China trade war impacting commodity prices.
Earlier on Monday, the US dollar weakened against most major currencies during the Asian session, boosting the euro, which approached 1.09 after a two-day dip.
This dollar weakness is linked to increasing odds of a Trump victory, reflecting market behaviour seen in the 2016 election when investors expected the Fed to lower interest rates amid political instability. Post-election, however, the dollar strengthened as markets typically preempt actual events.
Cryptocurrencies surged following last week’s attempt on Trump’s life, as the pro-crypto candidate gained traction. Bitcoin soared over 18% to surpass $68,300 since the incident and further rose by about 5% after Biden’s withdrawal from the race.
Harris’s nomination could rally more support against Trump, who has seen a rise in polls since the assassination attempt. Historically, Wall Street has fared better under Democratic administrations, although this is not a guaranteed predictor.
In the immediate future, market focus is likely to remain on the Federal Reserve’s policies rather than political developments, given the impending interest rate cuts—the first since the 2020 pandemic. The economic outlook in the US remains uncertain due to recent data and the current political climate.
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