Debate between Trump and Biden could lead to volatility in the US stock markets

The first debate between President Donald Trump and Democratic candidate Joe Biden could lead to volatility in the US stock markets ahead of the November elections, in which bookmakers believe that both candidates have an equal chance of winning.

Shares in global trading and renewable energy companies could rally if Biden successfully speaks in Tuesday’s debates, and shares in fuel companies and defense contractors could rally if Trump makes a better impression.

The first of three scheduled rounds of debate will come at a very challenging time for Wall Street.

The S&P 500 is down about 10% from all-time highs in recent weeks, recouping some of its losses on Friday as investors worry about a prolonged recovery from the coronavirus-induced downturn and uncertainty surrounding the November 3 presidential election, including the possibility of a delay in the announcement of a winner.

If one of the candidates is clearly stronger on Tuesday, “the debate could be a game of individual stocks and sectors,” said Jack Ablin of Cresset Wealth Advisors.

“For example, I think that for Apple (NASDAQ: AAPL), life under Biden would be much easier than life under Trump,” Ablin said, referring to Trump’s trade conflict with China.

Some stocks and assets are more sensitive to the outcome of the debate, even if broader markets generally ignore them.

For example, the September 26, 2016 debate between Trump and Hillary Clinton led to a 2% increase in the Mexican peso, as well as changes in the prices of oil, gold and Treasury bonds, a study from the University of Michigan and Dartmouth College showed.

Many investors think Biden is more likely to raise taxes, and Trump, who favors deregulation, will generally be better for stock markets. That being said, Trump’s victory could raise fears of tensions between Washington and Beijing.

Meanwhile, bookmakers believe Biden’s chances of beating Trump in the Nov. 3 election are 53%, up from 61% in early August, according to RealClearPolitics.

The S&P 500 could rally about 1% the day after Biden’s victory, or fall 4% after Trump’s re-election, according to Cornerstone Macro analysis based on statistical comparisons of current asset prices and betting odds.

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