President Biden’s fate as the Democratic nominee — and perhaps as president for the remainder of his term — remains in the air as pressure mounts for him to exit from the race following his performance in a June 27 televised debate.

For his part, Biden insisted in a Friday interview with ABC News that he would remain in the race, saying only the “Lord Almighty” would be able to persuade him to drop out, but congressional Democrats and some major donors have urged him to weigh whether he should remain in the race. Pressure appeared to increase over the weekend, with the Wall Street Journal and other news organizations reporting Sunday that several senior House Democrats believed Biden should step aside.

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Stock-market investors have largely taken the uncertainty in stride, while the bond market has been rattled by the rising prospect that challenger Donald Trump could return to the White House alongside Republican control of both the House and Senate. That would clear the way for the full extension of tax cuts and the implementation of other measures that could fan renewed inflation fears.

Read more: Biden campaigns in Pennsylvania as more top Democrats say he should step aside

“There’s still a lot of uncertainty on the political front as the president sorts out the future of his campaign. For now, it does seem like financial markets are following the betting markets, which are following the initial polling,” Christopher Smart, managing director at the Arbroath Group, a geopolitical risk practice, told MarketWatch.

See: If Biden drops out of the race, this is what will matter to the stock market

The RealClearPolitics average of major polls showed Trump’s lead over Biden widening to 3.3 percentage points in the wake of the debate, versus 1.5 percentage points beforehand.

”As the odds rise of a Trump victory that now includes potential Republican control of Congress, the odds also rise of higher tariffs, wider deficits and less immigration. Even if a second Trump administration can’t deliver on his extreme campaign promises, the direction of travel is inflationary and bound to give the Fed pause as it considers cuts next year,” Smart said.

Yields on long-term U.S. government debt jumped to one-month highs on aggressive selloffs in the two days that followed the debate, with the 10- BX:TMUBMUSD10Y and 30-year rates BX:TMUBMUSD30Y respectively shooting up by a total of 19.1 basis points and 21.6 basis points from June 28 through July 1, before erasing much of the rise by the end of the week. Yields and debt prices move opposite each other.

Read: U.S. presidential election highlights biggest risk to a bond-market rally in the second half

Investors, of course, are far from fixated solely on politics. The S&P 500 SPX booked its 34th record close of 2024 on Friday after the June jobs report pointed to a cooling of the labor market that reinforced expectations the Federal Reserve could begin to cut interest rates in September.

The S&P 500 has surged nearly 17% so far in 2024, in a rally led by megacap tech stocks. The Dow Jones Industrial Average DJIA has lagged, up around 4.5%. Stock-index futures were little changed early Monday.

While speculation swirls around who would replace Biden at the top of the ticket, analysts and commentators have argued for a variety of reasons that it would be difficult for Democrats to tap anyone other than Vice President Kamala Harris. But Biden stepping aside as the nominee would also raise questions about whether he is fit to continue in the presidency.

“The question for markets is not what would a Harris administration look like, because Harris would absolutely message continuity with the Biden administration. The more significant short-term question is whether or not Biden would face intense pressure to resign the presidency in the interim, which some Republicans have already messaged,” said Rob Casey, partner at Signum Global Advisors, after Biden’s Friday interview with ABC News aired. “The national security implications of that question could spook markets in the lead up to November.”

Check out: How Kamala Harris’s policies could differ from Biden’s, if she’s the Democratic nominee

Meanwhile, investors should be wary of leaning too much into bets based on perceptions of potential election outcomes, Terry Haines, founder of Pangaea Policy, said in a Friday note.

He compared prediction markets to “funhouse mirrors” because they aren’t correlated to political odds, particularly when it comes to the presidency, which is determined by the Electoral College rather than the popular vote. And “baskets” of shares based on what industries or sectors would benefit or suffer under a Biden or Trump presidency are constructed as if the president alone were responsible for policy.

Key Words: Ray Dalio says Trump and Biden reflect decades of ‘horrendous leadership’ by baby boomers

That said, the bigger picture, Haines said, is one in which investors should be prepared for bouts of volatility

“There’s no markets upside to the precarious Biden situation, and it isn’t going to change because Biden’s acuity now will remain both on election center stage and top of mind for markets,” he wrote.

”Investors today don’t seem overly nervous about the prospects of an impaired president and a consequent spike in instant U.S. political instability and geopolitical risk, but the situation now is likelier to change instantly with no warning and significant markets downside,” Haines wrote.

—Robert Schroeder contributed to this article.

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