The U.S. stock market faces uncertainty with rumors swirling about President Joe Biden’s potential withdrawal from the 2024 presidential race. While comparisons to former President Lyndon B. Johnson’s 1968 withdrawal provide a historical reference, the current market landscape suggests a different reaction this time around.
Historically, the 1968 withdrawal of LBJ had a notable impact on the market. After Johnson’s announcement on March 31, 1968, the S&P 500 surged 2.5% the following day. By the end of that year, the index had climbed 15.1% from its low point. However, this historical precedent might not be as predictive as some hope.
Max Holland, an historian and expert on the 1960s, emphasizes the unexpected nature of LBJ’s withdrawal. “LBJ’s decision came as a shock to most, as it was not widely speculated or anticipated,” Holland notes. In stark contrast, the possibility of Biden stepping down is a topic of open discussion, reducing the element of surprise. This anticipation is crucial in efficient markets, where widely expected events are already priced in, limiting the impact of the actual occurrence.
Further complicating comparisons is the context of Johnson’s announcement, which included a partial cessation of U.S. bombing in North Vietnam—a significant factor in the positive market reaction. Separating the effects of Johnson’s withdrawal from the bombing halt is challenging, making it harder to draw direct parallels to today’s situation.
Stock market sentiment also differs significantly between the two periods. Before LBJ’s withdrawal, the Investors Intelligence’s Sentiment Index indicated that only 10.3% of market-timers were bullish, reflecting extreme bearishness. According to contrarian analysis, such pessimism often precedes a bullish turn. Today, however, bullish sentiment is at or near historical highs, presenting a headwind for any potential market rally stemming from Biden’s withdrawal.
In summary, while the stock market might react to Biden’s potential withdrawal, expecting a repeat of the 1968 scenario could be misguided. The differences in market sentiment, the public’s anticipation, and the broader political context suggest a more muted response. As Wall Street often reminds us, “history doesn’t repeat itself, but it often rhymes.” In this case, however, the rhyme may be hard to discern.
Key Takeaways
- Historical Reference: LBJ’s 1968 withdrawal led to a significant market rally, but the conditions today are markedly different.
- Market Sentiment: Extreme bearish sentiment in 1968 contrasted with today’s bullish outlook, suggesting different market dynamics.
- Anticipation and Pricing: The open speculation about Biden’s potential withdrawal means it may already be priced into the market.
- Broader Context: The partial cessation of the Vietnam War bombing was a significant factor in the 1968 market reaction, complicating direct comparisons.
Conclusion
While historical parallels provide a reference point, the unique circumstances surrounding Biden’s potential withdrawal suggest a different market response than seen in 1968. Investors should remain cautious, considering the broader context and current market sentiment. The real impact may hinge on additional factors beyond the withdrawal itself.