Wall St set for higher open as investors assess U.S. election after Biden exit

By Ankika Biswas, Shubham Batra and Lisa Pauline Mattackal

(Reuters) -Wall Street was poised to open higher on Monday as investors weighed the odds of a second term for Republican nominee Donald Trump in the November election after President Joe Biden withdrew from the race and endorsed Kamala Harris's candidature.

Megacap stocks rose in premarket trading, with most U.S. Treasury yields including the benchmark 10-year bond yield edging lower after Biden's announcement. Meta Platforms, Alphabet, Amazon.com and Apple gained more than 1% each.

At 8:34 a.m. ET, Dow e-minis were up 85 points, or 0.21%, S&P 500 e-minis were up 37 points, or 0.67%, and Nasdaq 100 e-minis were up 210 points, or 1.07%.

Biden's exit on Sunday could prompt investors to unwind trades on bets that a Republican victory would increase U.S. fiscal and inflationary pressures. But some analysts also said markets could benefit from an increased chance of a divided government under the next administration.

Trump-linked stocks such as Trump Media & Technology Group and software firm Phunware rose 0.4% and 1.4%, respectively.

"There might be a bit of an unwind of the pro-cyclical pro-small-cap trade we've seen if the odds of the race narrow a little bit," said Ross Mayfield, investment strategy analyst at Baird. "But the rotation in the market has been more driven by disinflation and the potential for rate cuts and a soft landing, than anything political."

Wall Street's "fear gauge" edged lower, but remained at a three-month high, reflecting mounting investor unease.

The uncertainty over the Democratic ticket is the latest upheaval in the election cycle and comes as investors brace for a bevy of key quarterly earnings, including from two of the so-called Magnificent Seven companies - Google parent Alphabet and Tesla.

The question of whether the recent rally in top-tier high-momentum stocks is tenable is now on everyone's minds.

Focus will also turn to crucial data through the week, including the Personal Consumption Expenditures Price Index - the Federal Reserve's preferred inflation gauge - durable goods and second-quarter GDP, for insight into the central bank's monetary policy trajectory.

The combination of results and economic data will be a key test for Wall Street after a three-day sell-off that saw the Nasdaq and the S&P 500 log their steepest weekly declines since mid-April on Friday.

It will also test whether a rotation out of expensive tech stocks to underperforming sectors will continue. Futures tracking the small-cap Russell 2000 rose 0.5% after the index posted its second straight weekly gain.

Traders have broadly priced in a 25-basis-point rate cut by September and two cuts by the year-end, according to LSEG and CME's FedWatch data.

Among single movers, Nvidia rose 1.8% after Reuters reported the AI chip leader was working on a version of its new flagship AI chips for the China market that would be compliant with current U.S. export controls.

Verizon Communications fell 4% after it missed second-quarter revenue expectations.

Cybersecurity firm CrowdStrike lost 4.5% and was on track to extend losses after a software update from the company sparked Friday's global tech outage, grounding flights, forcing broadcasters off air and leaving customers unable to access essential services.

(Reporting by Shubham Batra, Ankika Biswas and Lisa Mattackal in Bengaluru; Editing by Sherry Jacob-Phillips and Pooja Desai)