The last time the incumbent president withdrew from the election was in 1968, how did the U.S. stock market react at that time?
At that time, the US stock market surged, but many situations in 1968 were very different from now: first, this time the market has fully priced in the news of Biden's withdrawal, and second, there were not many people bullish on the US stock market at that time, while now the sentiment is bullish on the US stock market
Biden drops out.
No one knows what would happen to the US stock market if Biden withdraws from the 2024 US presidential election. After all, in US history, only one president voluntarily dropped out, which was Lyndon B. Johnson. The stock market performance when he dropped out was very different from the current situation.
On Sunday, March 31, 1968, Johnson announced his withdrawal from the 1968 US presidential election. The next day, the S&P 500 index closed up by a significant 2.5%. At the time of Johnson's withdrawal, the stock market was at a relatively low point, and by the end of 1968, the S&P 500 index had accumulated a 15.1% increase.
But some analysts point out that there are many differences between the situation in 1968 and today, making it unlikely for the market to react in the same way.
American historian Max Holland said: "Although there are some similarities between Johnson's withdrawal in 1968 and Biden's potential withdrawal on the surface, there are profound differences between the two. The news of Johnson's withdrawal was known to very few people within the circle at the time, and those who knew were very surprised. The public did not have any advance speculation. In contrast, today's calls for Biden to stop running are almost public."
Holland's view actually aligns with the efficient market hypothesis: all public and valuable information is already fully reflected in stock price movements, so when things actually happen, the market is unlikely to have any additional reaction. Therefore, even if you believe that Johnson's withdrawal statement back then was the reason for the S&P 500 index surge, investors cannot determine that today's market would react in the same way. After all, at that time, Johnson's withdrawal statement was accompanied by his decision changes regarding the Vietnam War.
On the other hand, the sentiment in the US stock market today is also very different from 1968.
According to the Investors Intelligence sentiment index, before Johnson made his withdrawal statement, only 10.3% of surveyed market participants were bullish, which was a very low percentage. However, today's bullish sentiment in the US stock market has reached or is close to historical highs.
Compared to 1968, the current bullish sentiment in the US stock market poses a strong resistance to future market gains, which would also reduce any positive reaction to Biden's withdrawal