President Joe Biden pulled out of the presidential race on Sunday, July 21, in a sudden and dramatic exit which made an immediate but limited impact on markets. In a statement posted to X, Biden said he would not seek to govern for a second term ‘in the national interest.’ The statement reportedly blindsided Whitehouse aides who had been told President Biden was determined to stay in the race.

To the surprise of some observers, President Biden did not address the nation in a television appearance, fuelling speculation over the Commander in Chief’s health, which had reached fever pitch after a debate performance with his Republican rival which was widely panned by critics. In the social media statement, President Biden endorsed his Vice President, Kamala Harris, to take the reins of the Democrat Party, and she now looks to be the likely nominee after several party grandees threw their weight behind her campaign.

Trump stocks up after Biden quits

Shares of Trump Media & Technology Group edged up after Biden ruled himself out of the race. The price of Trump’s social media platform, Truth Social, has long been thought by analysts to be tied to his fortune in the presidential race. Biden’s exit may point toward analyst sentiment about the likelihood of Biden’s prospective successor, Kamala Harris, beating Trump come election day. It may also indicate fears around the Democrat party descending into chaos, with key player Obama notable for his choice not to back the Vice President’s campaign immediately. As Reuters reported:

“The uncertainty over the Democratic ticket is the latest upheaval in the election cycle and comes as investors brace for a bevy of key quarterly earnings, including from two of the so-called Magnificent Seven companies – Google parent Alphabet (GOOGL.O) and Tesla (TSLA.O). The question of whether the recent rally in top-tier high-momentum stocks is tenable is on everyone’s minds.”

Before the bell on Sunday, S&P 500 Futures were up 0.6 per cent, with analysts forecasting more gains to come.

Trump victory priced in

Despite Biden’s shock exit from the race on Sunday, the reaction in the markets, though immediate, has been limited. Stephen Innes of SPI Asset Management told the Associated Press the steadiness was a result of a Trump win already being priced in, and the change of candidates on the Democrat side not being considered to threaten what appears to be a strong lead. He said:

“U.S. yields and the dollar opened slightly weaker in Asia but then rebounded, suggesting investors were fully clued into this outcome. The odds of a Trump victory also haven’t changed much.”

Forbes reported a “modest” climb for US markets on Monday, with the upward movement mirrored across Europe where the FTSE 100 was up more than 0.7 per cent and Germany’s Dax up by almost 1 per cent.

Biden’s exit comes amid a slowing economy

The uptick in markets comes amid fresh data which revealed US economic growth slowed in June. The data from the Chicago Fed Index was revealed amid further declines in manufacturing activity and consumer confidence. Though these negative indicators might ordinarily dampen marketactivity, analysts may see a slowing economy as boosting the chance of a Trump win – which as CNBC reports would be seen by Wall Street as a win for stocks.

A large number of positions are being held on the basis they will benefit from Trump’s win, a trading activity termed “Trump Trade”. Somewhat counterintuitively, worse than expected economic growth could put upwards pressure on key stocks.

However, on Monday there was some speculation that the change in Democrat Party’s candidate could throw cold water on those bets. As Reuters reported:

“The so-called Trump-trade, which presumes the former president’s tax policies will lift corporate profits while undermining the country’s long-term budget health, gained ground following Biden’s disastrous TV debate last month.

“It was especially visible in U.S. government bonds, with long-dated Treasury yields – which move inversely to prices – briefly rising on increased expectations that Republican presidential nominee Donald Trump would regain the White House after the debate and last weekend’s assassination attempt.

“Although yields quickly retreated on signs of economic weakening, the move reflected investors’ belief that a Trump presidency could lead to inflationary policies and a more fiscally expansive stance. But Biden’s decision to step aside and endorse Vice President Kamala Harris to replace him as the Democratic candidate casts doubt over a Trump victory and will likely prompt investors to pare those bets.”

But on Monday the markets showed no sign of abandoning the Trump Trade, with the CEO of ICA, Jay Hatfield telling CNBC he expected a ‘muted reaction’ to the news. The comments came amid modest rises on the Nasdaq and S&P 500. The Dow Jones also opened higher, up 0.3 per cent. That confidence appears to be reflected from within the Republican party, with Virginia governor Glenn Youngkin telling Bloomberg’s Open Interest programme the traditionally Blue state remained in play for the general election.