Wall St bounces back after sell-off as Biden exit takes centre stage

NEW YORK: The S&P 500 and the Nasdaq recouped some of the previous week’s losses on Monday, as investors reexamined the chances of a second presidential term for Republican nominee Donald Trump after US President Joe Biden pulled out of the race.

Biden announced his withdrawal and endorsed Vice President Kamala Harris’s candidature for the November election on Sunday. Online betting site PredictIt showed pricing for a Donald Trump victory slipped 4 cents, to 60 cents, while climbing 12 cents for a Harris win, to 39 cents.

Stocks firmed after a three-day sell-off, with megacaps such as Alphabet, Meta Platforms and Tesla gaining between 1.8% and 3%.

The Information Technology index topped sectoral gainers and was on track to snap a four-day losing streak.

At 11:44 a.m. ET, the Dow Jones Industrial Average was down 0.95 points, or -0.00%, at 40,286.58, the S&P 500 was up 28.28 points, or 0.51%, at 5,533.28, and the Nasdaq Composite was up 130.89 points, or 0.74%, at 17,857.83.

Trump-linked stocks were mixed, with Trump Media & Technology Group dropping 2.4%, while software firm Phunware gained 1.4%.

Biden’s exit could prompt investors to unwind trades on bets that a Republican victory would increase US fiscal and inflationary pressures. But some analysts said markets could benefit from an increased chance of a divided government under the next administration.

“Trump still has the lead, but everybody is also waiting to see who Harris will select for her running mate, which adds uncertainty, but also a little bit of excitement to the campaign,” said Sam Stovall, chief investment strategist, CFRA Research.

The question of who will be on the Democratic presidential ticket compounds investor unease ahead of quarterly earnings, including from two of the so-called Magnificent Seven companies - Alphabet and Tesla.

The results will test whether the recent rally in top-tier high-momentum stocks is tenable and if a move to underperforming sectors will continue. The small-cap Russell 2000 gained 0.3%.

“There is an awful lot of underperformance in the small-cap stocks that investors can take advantage of... They are very inexpensive by historic measures,” Stovall said.

Crucial economic data including the Personal Consumption Expenditures Price Index - the Federal Reserve’s preferred inflation gauge, which is expected to shed light on the monetary policy outlook - is due through the week.

Traders have broadly priced in a 25-basis-point rate cut by September and two cuts by the year-end, according to LSEG and CME’s FedWatch data.

Cybersecurity firm CrowdStrike slumped 12.9%, set to extend losses after a software update from the company sparked Friday’s global tech outage.

Delta Air Lines lost 1.9% after canceling over 600 flights as it struggled to restore operations after the outage.

Nvidia rose 2.5% after Reuters reported the AI chip leader was working on a version of its new flagship AI chips for the China market that would be compliant with current US export controls.

Verizon Communications fell 6.1% after a second-quarter revenue miss.

Advancing issues outnumbered decliners by a 2.00-to-1 ratio on the NYSE, and by a 1.33-to-1 ratio on the Nasdaq.

The S&P index recorded 10 new 52-week highs, while the Nasdaq recorded 34 new highs and 69 new lows.