Wall Street initially reacted positively to former President Donald Trump’s strong debate performance against President Biden, but the S&P 500 experienced a rise and then a fall on Friday.
Debate Impact on the Market
During the debate, Biden’s early stumble led to a 0.2% rise in S&P 500 futures, reflecting investors’ belief that a Trump win could be beneficial. A favorable inflation report further boosted this sentiment, leading to record highs for the S&P 500 and Nasdaq before a decline at day’s end. Biden’s poor performance raised doubts about his candidacy, fueling speculation that Trump could win the presidency and gain Republican Congressional support.Sectoral Reactions
Financial and oil sectors rose on the prospect of deeper corporate tax cuts under Trump, while concerns over budget deficits caused Treasury yields to rise. Renewable energy and healthcare stocks fell due to Trump’s criticism of Biden’s policies. Humana shares rose, anticipating better treatment for Medicare Advantage carriers under Trump.
Betting Markets’ Reaction
Political betting markets quickly reacted to Biden’s debate issues, with his re-election odds dropping significantly. Trump’s chances of winning a second term increased, with rising odds for a GOP sweep.
Biden’s Campaign Future
Commentators doubted Biden’s ability to stay in the race, suggesting possible replacements like Michigan’s Gretchen Whitmer or California Gov. Gavin Newsom.
More Trump Tax Cuts
The rise in S&P 500 futures suggests a market preference for a Trump presidency, with potential extensions of the 2017 tax cuts. In contrast, a Democratic victory would likely result in higher corporate taxes.
Fed Inflation Rate and Market Trends
Rising odds of Trump’s election correlated with S&P 500 gains, while Biden’s falling odds correlated negatively. Strong job growth raised concerns about delayed Fed rate cuts, but recent weaker economic news increased hopes for a September rate cut, aiding the stock market. The S&P 500’s recent performance highlighted the market’s preference for Trump’s policies, depending on the economic context.
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