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One of the most persistent clichés in finance is that markets abhor uncertainty.
However, it is not clear that the opposite actually exists.
Investors were dealt the latest blow of politically tense uncertainty on Sunday when President Joe Biden announced plans to withdraw from the presidential race amid growing concerns about his age and ability to serve a second term.
Biden also announced he was endorsing Vice President Kamala Harris to lead the Democratic field, but his unprecedented withdrawal from the race will set up a fierce battle for the incumbent party with just over three months until Election Day.
Stocks rose on Monday. Several strategists who reached our inboxes on Monday suggested the announcement would lead to increased market volatility.
But at least one strategist Yahoo Finance spoke to suggested this is perhaps the outcome many investors have been hoping for for a long time.
“Looking back on Sunday’s announcement, the biggest reminder is that many of the U.S.-based investors we spoke to this year seemed to have hoped for a different candidate,” Lori Calvasina, head of U.S. equity strategy at RBC, wrote in a client note Monday.
President Joe Biden (right) walks with Vice President Kamala Harris (AP Photo/Evan Vucci) (AP)
In other words, Sunday’s announcement, while surprising and confusing given its timing and development, was not only what many investors expected but also what they wanted.
This avoids the fact that what all investors really have to deal with is uncertainty. Stocks don’t trade in response to a company’s actual performance, but rather based on projected results. A stock’s positive or negative reaction to an earnings report is about the future, not the past. This is true even when a company doesn’t provide formal guidance.
Elsewhere in the memo, Calvasina wrote that the discomfort he felt while discussing the election with US clients was “similar to that felt when staring at the sun for an extended period of time”.
In other words, for these people, uncertainty was a desire, not a fear.
And it turns out the other way around is more painful anyway.
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