The Strategist

The potential implications of Biden’s withdrawal from the 2024 presidential race

The first 2024 presidential debate between Joe Biden and Donald Trump marked a critical juncture for Biden’s re-election campaign. Biden’s performance during the debate was notably poor; he appeared hesitant, his speech was sometimes unclear, and his responses did not alleviate concerns regarding his age and capability to continue campaigning, let alone run the world’s largest economy and strongest military power for another four years. These weaknesses were evident and only served to exacerbate existing doubts among democrats and the wider electorate. Even though Trump’s performance was not without its own issues, Biden’s stumbles were pronounced enough to cause significant alarm within his party. In addition, the probability of election success has now shifted significantly in favour of the Republican Party given the recent assassination attempt of Trump. Historically, presidential approval tends to rise after such events, as seen with Reagan, which is relevant even though Trump is a candidate rather than a sitting president. Any further actions against Trump will only energise the Republican base. Trump continues to lead in swing state polls while Biden struggles.

Date: 18 July 2024
Author: Sebastian Petric, LGT Senior FX Strategist, Tina Jessop, Senior Economist, LGT Private Banking
Reading time: 10 minutes

Elections in the United States of America — © Shutterstock

In light of this, there is increasing speculation about Biden potentially withdrawing from the presidential race. Should he decide to step down, this decision would need to be made relatively quickly to allow a replacement sufficient time to campaign effectively. The most straightforward and likely replacement would be Vice President Kamala Harris. This is due to both her current position as Vice President and the legal framework that permits the easy transfer of campaign funds from Biden to Harris, ensuring a seamless transition of campaign resources and focus. The existing campaign finance laws facilitate such transfers between the presidential and vice-presidential candidates within the same party, making Harris the most viable successor.

Potential successors

Beyond Harris, other democratic figures such as Pete Buttigieg, Gavin Newsom, and Gretchen Whitmer are potential candidates, but Harris’s current role and the relative simplicity of her stepping into Biden’s place make her the most logical choice, although her poor approval ratings may instil resistance. The transition would be relatively smooth, legally and logistically, thus minimising disruptions to the campaign.

Should Harris or another democrat assume the candidacy, the party’s policy direction is expected to remain largely unchanged. The Democratic platform is centred on expansive social benefit programmes aimed at reducing the cost of childcare, enhancing parental labour market involvement, and investing significantly in education, healthcare, and housing. These initiatives are designed to support families and boost labour force participation, particularly among women. Tax policies under a Democratic administration would likely include higher taxes on corporations and wealthy individuals to fund these social programmes. Fighting climate change and promoting global collaboration, while taking a tough stance on China in matters related to US national security, would prevail. This approach aims to balance economic growth with social equity, addressing income disparity while fostering a robust, greener economy.

The Democratic agenda also projects a stronger medium to long-term economic outlook, despite potential initial inflation increases. Policies focused on family support and immigration are expected to increase labour force participation and boost GDP without significantly raising long-term inflation. This economic strategy underscores the party’s commitment to both immediate and sustainable growth.

Capital market implications: unity government or divided congress?

The implications for capital markets vary depending on whether Democrats achieve a unified government or face a split Congress. In the event of a Democratic win across the board, the implementation of the party’s full economic agenda could lead to substantial investments in social programmes and infrastructure, benefiting sectors such as green energy, and healthcare, due to increased funding and supportive policies. Conversely, if Congress remains divided, legislative gridlock could limit the scope of new policies. However, some bipartisan agreements might still be possible on key issues like infrastructure, potentially moderating market volatility in the lead-up to the elections. The long-term impacts would depend significantly on the final composition of Congress and its capacity to enact substantial legislation. We expect no material reduction in fiscal deficit spending.

In conclusion, the potential withdrawal of Biden from the presidential race would likely result in Kamala Harris stepping in as the candidate, maintaining the continuity of the current policy trajectory. This includes a strong focus on expansive social benefits and higher taxes for corporations and the wealthy. The election’s outcome will determine the extent to which these policies can be implemented, with a Democratic sweep enabling a comprehensive rollout of their agenda, whereas a split Congress would necessitate more moderate legislative progress, which tends to be even better for US equity markets.

General risk information

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Risk information for single stock/single bond recommendations

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If this analysis was made available to any issuers mentioned in the publication prior to its distribution or publication, no changes were made to the price or rating after the issuer’s feedback. Important references for Liechtenstein can be found in articles 3 to 6 FinMV [Financial Analysis Market Abuse Ordinance], for Switzerland in the Swiss Bankers Association Directives on the Independence of Financial Research, and for Austria in section 48 BörseG [Stock Exchange Act], the Austrian analysis principles of the Österreichische Vereinigung für Finanzanalyse und Asset Management [Austrian Association for Financial Analysis and Asset Management, ÖVFA] and the Austrian Society of Investment Professionals (ASIP) and the Standard Compliance Code of the Austrian banking sector. A history of all ratings and recommendations is available at your LGT relationship manager.

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Unless otherwise stated or specified, the rates used in the analysis are normally the share prices provided by the news agencies Reuters and/or Bloomberg at the close of the stock exchange of the domestic market of the analyzed security or the relevant principal market of this security on the respective local stock exchange on the eve of the day of compilation.

Explanation of investment recommendations for stocks

We apply a “hybrid approach” (internal fundamental analysis combined with “theScreener”, an external, purely quantitative analysis tool). TheScreener is based on purely quantitative, i.e. computable variables such as (but not exclusively restricted to) profit adjustments of the past few weeks, stock valuation in relation to historical performance and comparison groups, the technical trend, performance in relation to the market etc. The assessment of the equity analysts, which is largely based on a qualitative analysis, does not need to match with the one of theScreener. For the overall judgement the assessment of the equity analysts overrides the one of theScreener. LGT Bank (Switzerland) Ltd. categorizes its analysis recommendations into five ratings: for a “Buy” recommendation we expect a relative outperformance compared with the sector. Only equities subjected to an internal fundamental analysis can be rated “Buy”. The recommendation “Attractive” is used for equities exclusively ranked by theScreener without any internal fundamental analysis as “slightly positive” or “positive”. A moderate relative outperformance versus the index is expected. For equities that we rate as “Hold” we expect a performance largely in line with the one of the sector. This can comprise both equities for which a fundamental analysis has been carried out as well as equities that theScreener ranks as “neutral” versus the index. The recommendation “Unattractive” is used for equities exclusively ranked by theScreener without any internal fundamental analysis as “slightly negative”. A moderate relative underperformance versus the index is expected. By contrast, “Sell” recommendations are based on the expectation of a relative underperformance compared with the sector. This can comprise both equities for which we are recommending “Sell” for fundamental reasons as well as equities that theScreener ranks as “negative” versus the index. Therefore the ratings always reflect a relative consideration versus the sector and/or specified index. The risk assessment is based on the individual judgement of the analyst (e.g. we assume a “high” risk for illiquid shares, highly indebted companies or shares from developing countries).

Reference regarding share valuation basis: The analysis compiled by LGT Bank (Switzerland) Ltd. are essentially based on secondary research relating to fundamental and quantitative analysis. Generally accepted valuation methods (valuation multiples, return figures, sector comparisons, comparisons with past valuations etc.) are used for this. The forecasts for the quantitative analysis are prepared with the help of mathematical-statistical procedures (see statements above concerning the analysis tool “theScreener”). Economic indicators such as interest rates, currencies, commodity prices and assumptions relating to the economy are included in the overall assessment. The mood of the market also affects the company valuation. Moreover, many of the approaches are based on estimates and expectations that may change quickly and without warning, depending on developments specific to the industry. Therefore, the recommendations derived from the analysis can also change accordingly. The investment judgements generally refer to a period of 6 to 12 months. However, they are also subject to market conditions and represent a snapshot of the situation. They may be achieved more quickly or more slowly or be revised upwards or downwards.

Explanation of investment recommendations for bonds

We employ both qualitative and quantitative methods to derive our recommendations, which are to be seen as relative to sector/quality peers among comparable maturities. “Buy” and “Sell” recommendations demand a qualitative in-house analyst opinion, in which we incorporate both historical and projected financial results and credit metrics as well as past and anticipated company and sector-specific observations and trends. We recommend “Buy” for a security for which we expect a strong relative outperformance compared to sector/quality peers among comparable maturities. We recommend “Sell” if we expect strong relative underperformance compared to sector/quality peers among comparable maturities. The ratings “Attractive”, “Hold” and “Unattractive” can be based purely on a quantitative approach, which includes the market price of credit risk, valuation of equities and associated instruments, corporate leverage, liability structure, size, and agency rating. We recommend “Attractive” for a security for which we expect a relative outperformance compared to sector/quality peers among comparable maturities. We recommend “Hold” if we expect an average performance compared to sector/quality peers among comparable maturities. We recommend “Unattractive” if we expect a relative underperformance compared to sector/quality peers among comparable maturities.

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Definition of rating categories of S&P and Moody’s which are relevant for us:

AAA/Aaa: Borrower with highest credit quality. Default risk also virtually negligible over the longer term
AA/Aa: Safe investment, default risk virtually negligible but more difficult to assess in the longer term
A: Safe investment as long as no unforeseen events impair the overall economy or sector
BBB/Baa: Average investment. However, problems must be expected if the overall economy deteriorates
BB/Ba: Speculative investment. Defaults must be expected if the economic situation deteriorates
B: Highly speculative investment. Defaults are likely if the economic situation deteriorates

For more information on our methodology for bonds, please contact your LGT relationship manager or your local LGT Group company.

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