In an overnight development, the incumbent US President Joe Biden has withdrawn his candidacy for a second term in office and endorsed Vice President Kamala Harris as Democratic nominee, following weeks of deliberation and disappointing performance in a debate with Republican nominee Donald Trump on June 27.
Vice President Kamala Harris is widely seen as the front runner. Democrats would be requiring a n ew nominee at their convention in Chicago from August 19–22. UBS said in the Biden campaign’s filings with the Federal Election Commission, Harris was included on the statement of organisation, which means she will encounter fewer legal obstacles in the use of the Biden campaign war chest. Besides, UBS said it would not expect a major shift in policy priorities from any of the top Democratic contenders on the issues of concern for US investors. The continuity would be clearest if Harris becomes the nominee, it said.
"Prior to Biden’s exit from the race, we had seen a 60% chance that Trump retakes the White House, with a 45% probability of a “red sweep.” We had also seen a 15% likelihood of a Trump presidency with a split Congress, a 30% probability of a Democratic win with a split Congress, and a 10% probability of a “blue sweep," UBS said.
The foreign brokerage said Biden’s endorsement of Kamala Harris leaves her well positioned to capture the nomination. But she still must convince convention delegates, who are no longer bound to support Biden, that she is the individual best positioned to defeat the Republican nominee in November, it said.
"We expect her to emphasise the continuity of Biden’s platform, her service as vice-president, and her ability to appeal to women, younger voters, and voters of color," the foreign brokerage said.
UBS said a Trump victory — especially if supported by a Republican majority in Congress — would likely raise market expectations of tax cuts and lighter business regulation, while adding to concerns over higher trade tariffs. A Democratic administration would likely continue to support initiatives benefiting green energy, efficiency, and electric vehicle makers, it noted.
"Investors should remember that US political outcomes are far from the largest driver of financial market returns, or even sector performance. Economic data and Fed rate cut expectations remains at least as important. In addition, much can still change ahead of November's ballot and a range of outcomes remain possible," it said.
UBS said its base case that the S&P 500 would end 2024 around 5,900, modestly higher than the current 5,505, would hold in most political scenarios — barring a Democratic sweep of power that leads to higher corporate taxes, or a scenario in which former President Trump imposes trade tariffs that are as high as proposed in his campaign speeches.
UBS considers either outcome unlikely at present. In addition, it expects the positive outlook for top US tech companies is likely to more than offset political uncertainty.