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CNN
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President Joe Biden delivered a shaky performance at last night’s presidential debate, causing panic in the Democratic camp. Meanwhile, former President Donald Trump repeated numerous falsehoods and insisted on his track record of tax cuts and tariff increases during his first term.
Many economists fear that such an agenda, if repeated in a second Trump term, could stoke inflation at a critical moment and add to America’s rapidly growing debt mountain. The markets barely reacted.
What happens: U.S. stocks were higher in premarket trading on Friday and CNN’s Fear & Greed Index remained neutral for the second straight day as investors took a relaxed view of a contentious presidential debate that dominated the news cycle.
Instead, investors focused on inflation – the Federal Reserve’s preferred measure, the personal consumption expenditures (PCE) price index, which is released on Friday – and the end of a strong first half of the trading year.
“In the current environment, the direction of inflation and interest rates, as well as whether the Fed can deliver a soft economic landing, will likely be more important than the election,” wrote Keith Lerner, chief market strategist at Truist, in a recent analysis.
Despite their different policies, the S&P 500 index has delivered annual returns of between 12 and 17 percent under each of the last three U.S. presidents – Barack Obama, Trump and Biden, Lerner said.
Market volatility often increases toward the end of an election year and then subsides afterward. But this election is unusual because two incumbents are vying for office. That could accelerate the typical year-end recovery rally, said Ed Clissold, chief U.S. strategist at Ned Davis Research.
Investors have bigger concerns.
“The behavior of the stock markets and the reactions of investors in the coming days will largely depend on the release of the upcoming inflation data,” said Antonio Ernesto Di Giacomo, market analyst at brokerage house xs.com, on Friday.
“Friday’s PCE reading will be crucial and provide important insights into the future of inflation and possible action by the Federal Reserve.”
Markets are also focused on closing out a strong first half of the year – the S&P 500 is on track to finish the first six months of the year up 15 percent. A strong first half usually means the second half will be “very good,” Goldman Sachs’ Scott Rubner wrote in a recent note.
Industry specific: While broad market indices are relatively unaffected by the head-to-head race between Biden and Trump, certain sectors will be more affected by the election outcome, said Jonas Goltermann, deputy chief economist for markets at Capital Economics.
For example, financial and energy stocks tend to react more strongly to political decisions.
The US dollar also reacted, rising slightly after early CNN polls showed Trump was seen as the winner of the debate. This may be because Trump reiterated his desire to impose a 10% tariff on all imports, which would likely increase inflation and raise doubts about rate cuts.
View of France: On the other side of the Atlantic, investors are less confident about the looming political risks.
French President Emmanuel Macron has called for early parliamentary elections after his centrist Renaissance party suffered a clear defeat in the European elections against the far-right opposition. The first round of the French election will take place on Sunday, with a second round on July 7.
France has one of the highest budget deficits in the eurozone and is at risk of violating the European Commission’s new fiscal rules. Against this backdrop, markets are concerned about the populist policies being proposed by parties on the left and right.
“Political uncertainty is a near-term headwind for both sentiment (reflected in financial markets) and activity,” wrote Katie Nixon, chief investment officer at Northern Trust Wealth Management. Through July, “we can expect volatility in European equity and bond markets.”
While the majority of European indices were higher on Friday, the French leading index CAC 40 was down 0.3 percent.
The yield spread of German and French government bonds reached its highest level since the euro crisis in 2012 on Friday. Investors feared that the spending promised by the far-right French party would further increase the country’s already enormous mountain of debt.
CDK Global is still down ahead of July 4, the busy car-selling holiday, next week. Auto dealerships use the company’s software for everything from managing appointments to records. The mass outage since last week has crippled nearly 15,000 dealerships across North America.
CDK said last Saturday that it had begun restoring the software, but both car buyers and dealers are currently at an impasse. CDK has hinted several times that a repair is necessary, only to then say the systems would remain out of commission for a while.
Here’s what you need to know about the massive software outage, my CNN colleagues Ramishah Maruf and Eva Rothenberg report.
What does CDK Global do? CDK Global provides data and technology to various car dealerships. Its systems are used by approximately 15,000 car dealerships in the United States and Canada.
CDK operates several software products that auto dealers use to handle workflows such as recording negotiated deals, scheduling and communicating service. Not every dealer uses CDK products, and those that do may not use CDK for all auto dealership tasks, but the system outage was a problem for many.
To protect customer privacy, customer data is no longer recorded on a piece of paper that simply sits on the desk. Instead, information about deals and customer appointments is stored on a server that is now inaccessible to the sales representatives affected by the outage.
Can I still buy a car or get my car repaired? Salespeople and service representatives who spoke to CNN said they have switched to pen and paper for the checkout process, which has increased the time it takes to buy a car, said Scott Campbell, a salesman at Capital City Buick GMC in Berlin, Vermont. He estimates wait times have doubled or tripled.
Several buyers and repair customers told CNN that they experienced long delays.
When will CDK be online again? CDK Global does not expect its systems to be back online before June 30.
Why did system failures occur? CDK has said it is working to investigate the shutdown after two cyber incidents brought its systems to a halt. The company has not confirmed who is behind the incidents.
Bloomberg had previously reported that the company was negotiating with a hacker group from Eastern Europe and demanding a ransom in the tens of millions of dollars to fix the problem.
Walgreens will close a significant number of its approximately 8,600 stores in the United States as part of the struggling pharmacy chain’s business restructuring, reports my colleague Jordan Valinsky.
While the company did not disclose a specific number of store closures, it said Thursday that it plans to close “significant” stores across America as part of a multi-year optimization program.
CEO Tim Wentworth said on a conference call with analysts on Thursday that “changes are imminent” for the roughly 25 percent of stores that are not profitable and that Walgreens’ strategic review “will include closing a significant portion of these underperforming stores.”
“We have reached a point where the current pharmacy model is no longer sustainable and the challenges in our operating environment require us to approach the market differently,” he said.
