(Bloomberg) -- US futures opened little changed as traders assessed the stock-market implications of President Joe Biden’s decision to not seek reelection before a week loaded with major earnings releases.
Futures on the S&P 500 Index rose less than 0.1% at 6:02 p.m. in New York. Investors looking for reaction to the political bombshell assessed traded in Bitcoin, which rose 0.7%, while the dollar — typically a safe-haven that investors seek out during times of turmoil — traded little changed.
While politics continued to dominate conversations on Wall Street, the market implications from Biden’s withdrawal were not easily ascertainable. Biden endorsed Vice President Kamala Harris as the Democratic nominee to square off against Republican Donald Trump.
Traders already grappling with the uncertain path of Federal Reserve rates and the relative strength of the economy now must weight how Harris, or another challenger, will fare against Trump. With so much unknown four months from the election, traders are bracing for volatilty in the summer months.
“This means more uncertainty in the near term,” said Gene Munster, co-founder and managing partner at Deepwater Asset Management. “There was a lot of confidence about Trump winning, and markets won’t like this new uncertainty, along with the news cycle about who is in, who is out, and all those unknowns.”
The political turbulence lands just before a heavy week of earnings, with megacap tech stocks such as Alphabet Inc. and Tesla Inc. due to report. The S&P 500 fell 2% last week as investors ramped up bets that tech dominance will fade after a historic run. Smaller companies benefited, with the Russell 2000 adding 1.7% for a second straight week of gains.
While the rotation from tech winners to laggards of the past 18 months continued, investors have needed to keep a closer eye on politics, with the implications for markets increasingly hard to predict.
“The knee-jerk market reaction to the Sunday news may be to (briefly and modestly) dial back expectations for a ‘Red Wave’ in November, Adam Crisafulli of the Vital Knowledge newsletter, wrote. “Biden’s presence had become such a drag on generic Dem polling numbers that simply removing his name from the equation should cause things to tighten a bit.”
Still, there are some sectors that have tended to be more responsive to political shifts than other, so when trading resumes Monday investors worried about political implications will likely watch cryptocurrencies, private-prison operators and fossil-fuel related companies. Other areas that will be in focus are regulation-heavy groups such as financials and health care, and gun makers.
Immigration has been one of the biggest points of contention this election, and prison stocks GEO Group Inc. and CoreCivic Inc. have risen sharply in recent weeks, as Trump was expected to support both the public and private sector when it came to border security, with a focus on physical detention.
Trump’s ardent courting of the cryptocurrency executives in an effort to court undecided voters, has been a sharp contrast with Biden administration regulators who remain skeptical of digital assets. That in turn made Bitcoin a proxy for betting on a Republican win, and the cryptocurrency rallied after the presidential debate and again after the attempt on Trump’s life. If that trade sees some unwinding, the stocks to watch will include Coinbase Global Inc., Marathon Digital Holdings Inc., Riot Platforms Inc., Cleanspark Inc., MicroStrategy Inc. and Cipher Mining Inc., as well as the Bitwise Crypto Industry Innovators ETF.
Fossil-fuel, yet another issue that the two parties vigorously disagree on, can see some rotation, especially given Harris has been a vocal critic of fracking, and has in the past proposed plans for fighting climate-change that went beyond those of Biden’s. Stocks to watch include Baker Hughes Co., Exxon Mobil Corp., ConocoPhillips, Occidental Petroleum Corp. and Williams Cos Inc. Halliburton Co., Devon Energy Corp., Chevron Corp., among others.
The recent exuberance in financials and health-care stocks, given a Republican-presidency is expected to be more lenient than a Democratic one, can lose some steam. Investors will be keeping an eye on the big bank stocks, funds such as the Vanguard Financials ETF, as well as credit card companies like Discover Financial Services, Capital One Financial Corp. and Synchrony Financial. Managed care companies UnitedHealth Group Inc., Humana Inc. and CVS Health Corp, which owns insurer Aetna, will also be in focus.
Gun companies, especially after the attack on Trump and the recent Supreme Court decision to throw out the federal ban on bump stocks, have come back into the headlines. Smith & Wesson Brands and Sturm Ruger & Co. may see some volatility, as well as retailers like Walmart Inc. that sell firearms.
On the other hand, electric-vehicle stocks — from the carmakers to the charging station operators — have struggled recently amid Republicans anti-EV stance. Renewable energy companies, including solar and wind power, had also been weak, since Democrats are widely seen as more favorable for the group.
During his nomination speech on Thursday, Trump had taken aim at Biden’s EV policies, and said he will “end the electric vehicle mandate on day one.” EV-makers Tesla Inc., Rivian Automotive Inc. and Lucid Group Inc., charging companies ChargePoint Holdings Inc., Beam Global, Blink Charging Co., and battery metals companies Lithium Americas Corp. and Albemarle Corp. may be volatile.
China-exposed companies can see higher swings as well, with both parties taking a tough stand on trade policies and floating ideas about higher tariffs and stricter restrictions, especially with China.
Overall though, moves are expected to be muted, even though trading volume can be heavy, traders said, given Harris is largely expected to stick to the policies floated by Biden.
“We will have to see what the polls look like in the next couple months, and if Harris is gaining traction, said Eric Diton, president and managing director of The Wealth Alliance. “If she is, then it really could be a toss up in terms of which way to go because the Republican and the Democrat platforms could not be further apart.”
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