President Joe Biden has made the right choice to pull out of the race for the White House, which since that disastrous debate and the attempted assassination of Donald Trump, has become more an expected walkover than a race! Mr Biden has endorsed his Vice President Kamala Harris, but she is unlikely to be supported by Democrats at their convention in Chicago from August 19 to 22.

So, how will the financial markets respond to this big and sensible decision by Joe Biden?

Following the assassination attempt, stocks were down for the week. While some of that was linked to the expectation of the first interest rate cut in September, which has encouraged investors to take profits by selling stocks that did well recently, to buy stocks that will benefit from lower interest rates. It’s called rotation out of certain companies or sectors into others.

The S&P 500 dropped 2.56%, while the Nasdaq lost 4.11%. But the Dow Jones index actually was up 0.37%, which indicates that non-tech companies will be more popular as interest rates fall because they have customers who might spend more as rates fall.

However, there would have to be some “Donald Trump is certain to win”, following that shot and that could’ve helped the overall indexes drop as well.

For example, Tesla’s share price fell, and we know Mr Trump favours scrapping EV subsidies, which would likely hurt Tesla. He will also slam tariffs on Chinese products, which will include those made by US producers who make ‘stuff’ in China.

On the flipside, Elon Musk has supported Trump and that’s not just with words. In the US it also means money!

On Trump tariffs, Citi believes the most important potential impact on commodity markets stems from Trump’s stance of tariffs. Last week, Trump announced a plan proposing a 60% tariff on US imports from China, and a universal baseline 10% tariff on imports from all other countries.

Clearly, companies negatively affected would’ve seen their share price negatively affected as well, while others would’ve been beneficiaries of these intended policy hits. A Biden replacement would not impose such tariffs. It will be interesting to see how the market responds to his resignation from the race.

We might have to wait to see who takes his place before there’s a significant market reaction.

Citi believes this wouldn’t be good for commodities and we sell commodities — iron ore, coppers, wheat, wool, etc. Meanwhile, gold and silver should do well because by the time these tariffs come into law, it could be a year’s time and interest rates will be on the way down. Lower interest rates are good for the likes of gold.

A trade war could lead to a rush for the US dollar, seen as a safe haven and that would send our dollar down. That’s good for us selling exports but it would be inflationary, as our imports become dearer with a weaker dollar.

A Democrat is looking like a better option for Australia, as it would reduce the need for the Albanese Government to take sides in the expected trade war with China. Last time that happened, PM Morrison quickly supported Trump. Not long after, China hit us with tariffs on wine, coal, barley, lobsters and other products.

Overall, Wall Street wouldn’t have a big negative reaction to a new President Trump, as he sees the stock market going up as an endorsement of his popularity. On the other hand, a Democrat would be seen as a more reliable President to read, understand and invest with, which market players prefer.

The trick for the Democrats is to come up with a genuine rival for Donald Trump or else he’ll be a shoo-in and 2025 could be a trickier year for investing. It will be helped by falling US interest rates, but the Trump tariffs could be a big negative for an export-oriented country like Australia, whose best customer is China!

By the way, BHP fell 4.79% last week, which could be a little bit of Trump fear and a larger bit being China’s slow economic recovery, which data showed recently. A strong China with no trade wars would be better for Australia.