With the U.S. presidential election just a few months away, there are more questions than answers about what may be next.
On July 21, President Biden announced on X, formerly known as Twitter, that he would not be running for a second term and that he would instead be endorsing Vice President Kamala Harris as the Democratic nominee. As of July 22, the Democratic National Committee (DNC) had not officially chosen a party nominee to replace Biden.
BOK Financial® Chief Investment Strategist Steve Wyett said that the U.S. is “entering new territory” with the announcement. “Changes in the candidates have happened before, but they’ve occurred much earlier,” he explained.
“Biden’s announcement just reintroduces a heightened level of uncertainty around what this election is, what it's about and who's going to be involved in it—and on a very compressed timetable between now and Nov. 5, when the election takes place.”-Steve Wyett, BOK Financial chief investment strategist
Markets react to series of events
Biden’s announcement came on the heels of events that have left political analysts and investors alike scrambling to figure out what may be next.
That same day, some financial analysts had already begun to anticipate the unwinding of “Trump trade”—that is, investors’ bets on stocks that are expected to benefit if Trump wins the election. These bets increased after the June 27 presidential debate and the July 13 assassination attempt on Trump.
Financial market moves leading up to an election are common. As BOK Financial Chief Investment Officer Brian Henderson explained, “Leading up to an election, if one candidate moves up or down significantly in the polls, it then likely affects the stocks of the companies that would or would not benefit if that candidate were elected.”
“The important thing is not to focus on short-term movements in the market, but rather on your ability to meet your long-term goals by having diversified investments," he said.
The bigger event for financial markets leading up to the election may be the Federal Reserve’s decision to cut rates for the first time since this rate-hiking cycle began in March 2022. Wyett anticipates that the Federal Open Market Committee (FOMC) will begin preparing markets for the move in the communication surrounding their July 30-31 meeting. Markets are predicting that the first rate cut decision will come at the FOMC’s September meeting.
Although these meetings are occurring in the months leading up to the presidential election, the Fed itself is apolitical, Wyett stressed.
“This Fed isn’t making decisions based on the upcoming election. They’re focused on what they can do today to avoid the echo wave of inflation that’s been common in the past,” he explained.
. © 2024 BOKF, NA.