🔦 Biden opts out

and stocks take a break

Good morning investors! Major developments happened over the week, read the issue to find out.

Today we cover:

  • Biden bows out

  • The potential impact of Biden’s decision on the market

  • Stocks take a break

📊 Economy and News 

Biden bows out of the presidential race

President Joe Biden announced he will drop out of the 2024 presidential race against former President Donald Trump.

This surprising decision by the 81-year-old Biden comes as an increasing number of his fellow Democrats urged him to step aside, allowing the party to choose a new nominee next month to run against Trump, who narrowly survived an assassination attempt on July 20 at a campaign rally in Pennsylvania.

For weeks, Biden's campaign had maintained that he would stay in the race, despite mounting concerns after his disastrous debate with Trump in late June that he was too old and frail to compete against the former president and serve a full second term if re-elected.

Biden’s withdrawal throws the presidential race wide open less than four months before Election Day. It also creates significant challenges for the Democratic Party, which now must quickly organize a new presidential ticket.

This move could pave the way for Vice President Kamala Harris to run at the top of the ticket, potentially becoming the first Black woman to do so in the country's history. However, Biden did not mention her in his announcement.

This move may have an impact on the market.

“If President Biden were to announce his withdrawal from the reelection race, the immediate market reaction would likely be characterized by volatility and uncertainty,” said Josh Thompson, CEO of Impact Health USA. “Investors typically favor stability and predictability, and such a major political shift would disrupt both.”

Thompson explained that the initial response could involve a sharp drop in stock prices as investors look to hedge against potential risks.

However, some experts suggest that Biden’s exit could actually benefit U.S. equities.

Timothy Holland, CFA and Chief Investment Officer at Orion, noted that if Biden’s departure led to a perception of a weaker replacement against President Trump, it could be advantageous for U.S. equities. Wall Street might start considering and pricing in a fiscal policy environment with both an extension of the Trump Tax Cuts and increased government spending, especially on the military.

Holland added that this combination could stimulate the U.S. economy and boost corporate profits in the short to intermediate term, potentially driving stock prices higher.

Peter C. Earle, senior economist at the American Institute for Economic Research, emphasized that the market’s reaction will largely depend on the specific candidate who replaces Biden. He noted that there will be significant uncertainty until a new candidate is nominated and accepts the nomination, which is generally favorable for gold and silver.

Timothy Holland from Orion pointed out that post-presidential debate bond yields rose and bond prices fell as Wall Street considered the potential for a Republican sweep on Election Day, which could lead to an extension of the Trump Tax Cuts and increased government spending, particularly on the military.

"This scenario was seen as inflationary," Holland explained. "However, weaker-than-expected labor market and inflation data soon after led to lower yields and higher bond prices."

Veda’s Vaughan predicted a rally in the crypto markets if Biden were to drop out. "A Trump presidency would likely be far more supportive of the crypto ecosystem as a whole," she added.

Global hits:

Fun news: Single wedding guests spend $273 more than couples, new study shows.

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📈 Stocks

S&P 500 5,505.01 (-0.71%)
DJIA 40,287.53 (-0.93%)
NASDAQ 17,726.94 (+%)(-0.81%)
BRENT CRUDE 82.95 (+0.31%)
* Prices as of Jul 22nd, 12:20 AM UTC

Stocks take a break

Stocks retreated on Friday, capping off a week characterized by a shift from this year’s megacap winners to smaller companies.

Friday’s declines saw the Russell 2000 drop by 0.63%. The week’s theme has been a rotation toward smaller caps, which are perceived to benefit more from potential Federal Reserve interest rate cuts.

“The stock market is experiencing a long overdue rotation,” said Glen Smith, chief investment officer at GDS Wealth Management. “Investors are reallocating funds from high-performing big tech stocks to other market sectors.”

This shift has encouraged some Wall Street professionals, who were concerned that the market rally relied too heavily on a few massive tech stocks. Meanwhile, rising optimism about impending interest rate cuts from the Fed has boosted smaller, more cyclically oriented stocks.

The Nasdaq’s underperformance this week can be attributed to the move away from megacap artificial intelligence stocks. Likewise, the information technology sector led the S&P 500 lower, with a 5.1% decline.

CrowdStrike tumbled 11.1% following a major information technology outage that impacted business around the world. The New York Stock Exchange and Nasdaq both said trading did not appear affected.

Something about Boeing: Boeing Commercial Airplanes CEO Stephanie Pope said the company is making progress on improving its output of planes.

She said the company’s transformation plan could take years to fully implement.

Boeing is trying to get past several safety and manufacturing crises, including the midair door plug blow out in January, which have slowed deliveries of planes to airlines and prompted the Federal Aviation Administration to increase its oversight of the storied manufacturer.

Stephanie Pope, in her first press conference since taking over the key role at the troubled aircraft manufacturer in March, reiterated that Boeing has committed to increasing production of the Max to 38 a month. Production slipped into the mid-20s per month in the first half of the year, analysts have said.

The company expects delayed suppliers to catch up on parts that have slowed production of its 787 jets to below a rate of five a month, as the U.S. planemaker works to restore output of two key commercial programs by the year’s end.

💵 Personal Finance

Why the UK is a great real estate market

The UK's residential property market has consistently outperformed other investment options over the past 30 years. According to GOV.UK data, property prices in the UK grew by approximately 5.5% from March 2022 to February 2023.

The average house price in the UK is £264,900 as of May 2024 (published in June 2024). Property prices are now at 0% inflation compared to a year ago. However, the average UK house price is set to rise by 1.5% by the end of the year.

The resilience of the country’s real estate market can be attributed to several factors:

  • Growing Population: Increasing population drives up demand for real estate, leading to higher property prices and rental values. The current population of U.K. in 2024 is 67,961,439, a 0.33% increase from 2023.

  • Limited Housing Supply: The scarcity of available housing puts upward pressure on property prices and rental rates. In England, there are now 1.4 million fewer households in social housing than there were in 1980. There has been an increase in overcrowding, in both the private rented sector and in social housing.

  • Rising Demand for Rental Properties: Changing lifestyles and affordability issues have led more people to opt for renting, boosting rental yields for investors. According to data from Zoopla, rents rose by 9.7% in 2023. This growth is forecasted to continue at 5% in 2024. The rental market is still being squeezed by high demand from tenants and low supply.

Regional Variations in Rental Yields

The UK boasts some of the highest rental yields in Europe, averaging between 3% and 5% gross yield. This makes the country one of the best to invest in if you want passive income. However, this figure varies by region:

  • Higher Yields in the North (7.4%): Factors such as regional economic growth, employment opportunities, and local housing demand contribute to higher yields in the North.

  • Lower Yields in the South (5.2%): The South generally offers lower yields due to higher property prices and a more competitive market.

Rate: The best mortgage rate available among two-year fixed-rate mortgages is now 4.49%, down from 4.63% a week earlier. The lowest five-year deal is priced at 4.08%. Plus, the rate is expected to go down.

Check this video for some great tips:

💰 Be a Better Investor

“The greatest wealth is to live content with little.”

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