Markets are braced for uncertainty as pressure mounts on President Joe Biden to step aside as the Democrats' candidate for November's Election. The odds of a victory for presumptive republican nominee Donald Trump have increased since his rival's shaky debate performance last week -- as have the stakes for bonds, stocks and the wider economy.
The market's reaction to the debate shows there are very real implications of a Trump triumph. Bond yields rose in line with the odds of him winning -- investors are betting that his promised tax cuts would increase government borrowing and that his plans to introduce steep tariffs on imports would be inflationary.
The impact on stocks would depend on sectors. Those that might benefit from light-touch regulation or tariffs, such as banks and steel, stand to benefit. Clean energy companies could face leaner times.
The critical factor in Biden's decision about whether to stay in the race could come down to opinion polls -- The Wall Street Journal's latest survey shows Trump's lead has widened to 6 percentage points, the most since 2021. And if he drops out, all bets are off in terms of market reaction. It doesn't really matter who replaces him on the ticket. Mooted candidates range from Vice President Kamala Harris to Former First Lady Michelle Obama.
The safest way to play the possibility of a different Democratic candidate is probably not to play at all -- try to keep your investments separate from your expectations about who will be president. There could be a lot of turbulence between now and November, and no one can claim with any confidence to know what will happen.
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