The recent announcement by US President Joe Biden to end his re-election campaign is a new development in the “soap opera” playing out in markets ahead of the upcoming US elections, according to AMP’s chief economist, Shane Oliver.
In the early hours of Monday AEST, President Biden confirmed he will end his presidential re-election campaign, and endorsed Vice-President Kamala Harris as the presumptive Democratic presidential nominee.
The decision came amid growing calls for Biden to step aside after his recent performance at the presidential debate raised questions of his age and fitness.
Speaking to InvestorDaily, Oliver observed there have been “marginal moves” in markets with Biden’s announcement, although the full impact on markets of the dropout remains to be seen.
“It’s hard to know whether Biden’s stepping down will have much of an impact, beyond the noise that comes with it,” Oliver said.
“US futures are actually up slightly and it’s hard to know whether that’s due to Biden stepping down, but it quite possibly could be,” he said, observing the probability of a Republican win has “pulled back” according to betting markets.
While the odds of a Republican win had surged to around 67 per cent following the debate debacle and assassination attempt on former US president Donald Trump, they now sit closer to 60 per cent, he noted.
However, looking at broader markets, Oliver maintained there has been a “relatively minor shift”, with modest rises of 0.2 per cent in S&P 500 futures.
Tech stock futures, he said, are up mildly higher at 0.3 per cent.
“Marginal moves, as I say, it’s nothing to get overly excited about, and the soap opera will drag on,” Oliver said, adding that uncertainty and market volatility around the elections appears to be “starting earlier” than previous instances.
“It has become a soap opera. We’re seeing a lot of surprise events, that swings market sentiment around, and it’s brought forward the time when investors would have to worry about a US election.
“You normally wouldn’t worry till September or so.”
Questions around tech trajectory
Market sentiment around the US presidential election, alongside the upcoming corporate reporting season, could also hold implications for technology stocks, which have been big winners among US share markets this year, Oliver observed.
The last week saw a pullback in tech-related stocks, spurred by concerns of tougher restrictions on exports of semiconductor equipment to China. This sell-off was exacerbated by a global technical outage caused by a glitch in cyber security company CrowdStrike’s software on Windows operating systems on Friday.
Both the Nasdaq and the S&P 500 went on to notch their worst week since April, and as at 22 July, both indices are down around 4.1 per cent and 2.3 per cent respectively over the last five days.
Oliver noted tech stocks have “run very hard in recent times”, and uncertainty around the stocks has seen investors use the opportunity for profit-taking.
“Nvidia started this a few weeks ago when it became the biggest stock by market capitalisation in the world and then it came under pressure,” he said, alluding to Nvidia’s $646 billion loss in market cap in June, which is understood to be the steepest three-day loss for any company in history.
The broader sector, too, has come under pressure, in part as confidence grows around the possibility of rate cuts by the US Federal Reserve later in the year.
“These things happen every so often, one sector shoots the lights out, then investors eventually say, ‘We’ve had enough here, the potential is a lot less’,” Oliver elaborated.
He forecasts further movements could be seen in the tech sector over the next few months, beginning with the corporate reporting season starting this week that will see tech giants like Alphabet and Tesla report their latest earnings.
For Oliver, the reporting season could have the potential to “bring more life” back into the share market.
“It has had a history, in recent times anyway, of surprising to the upside,” he told InvestorDaily.
“It could provide support – July has historically been a reasonably solid month for US markets, similarly in Australia – but August and September are known to be weak.
“And so, it wouldn’t be all too surprising if the market gets a lift and peaks out in the next week or so, and then has weakness through August and September as we go through the seasonal soft patch, accentuated by uncertainty associated with the US election.”
Given tech stocks have been big winners thus far, he added they could be “particularly vulnerable” to such market moves.
“On the one hand, there’s a boost which helps the whole market from lower interest rates as we head into rate cuts, probably in September, in the US. On the other hand, there’s a risk that we might start to see more concern about recession creeping,” Oliver said.
“I suspect it’s going to be a volatile ride.”
