President Joe Biden is the American Cincinnatus.

Cincinnatus was a statesman in ancient Rome who is often cited as a paragon of selfless duty. He was appointed emperor in a time of crisis to lead the Roman army against invading forces. After achieving victory, he resigned absolute power and returned to his humble life as a farmer.

Unless you live completely off the grid, you know by now that Biden on Sunday announced he will not seek re-election in November, endorsing Vice President Kamala Harris as the Democratic nominee.

No one expects Biden to take up a plough after the election, but whatever the result in November, he’s going back to Delaware.

This unexpected development introduces a new layer of uncertainty into the U.S. political landscape. However, despite the potential for increased volatility, the stock market has so far responded calmly and positively.

Stiff upper lip…

Another bygone empire comes to mind: Britain’s. During this tumultuous election year, Wall Street seems to be embracing the British slogan during World War II: “Keep Calm and Carry On.”

As I’ve frequently counseled, you should pay closer attention to corporate earnings and monetary policy than to politics.

The market’s steady reaction also suggests that investors do not anticipate significant policy shifts from the new Democratic candidate.

The performance of small-cap stocks, driven by deregulation hopes and expectations of a Federal Reserve rate cut, have recently started to outshine larger stocks.

Donald Trump’s policies favor lower taxes and deregulation but also include higher tariffs, all of which could introduce inflationary pressures. The Democratic stance on trade and taxes is expected to remain consistent with current policies.

The process of selecting a new Democratic nominee and the lead-up to the Democratic convention could increase short-term market volatility. Historically, market volatility rises about two months before the election but stabilizes post-election.

Regardless, the market outlook remains favorable, supported by rising corporate profits, economic expansion, and impending rate cuts by the Fed. I advise you to view short-term market dips as opportunities to invest in high-quality assets aligned with your long-term objectives.

Political headlines can cause temporary market fluctuations, but long-term market performance is driven by technical indicators and underlying fundamentals. Moving averages, economic growth, interest rates, and corporate earnings should take precedence as factors in your decision-making, not the political posturing you see on TV.

I expect the Harris/Trump contest to get ugly…really ugly. Don’t get spooked; stick to your investment goals.

The conventional thinking is often wrong. For instance, despite differing trade policies and rhetoric toward China between the Trump and Biden administrations, the MSCI China Index gained 114% under “protectionist” Trump but has declined by 48% so far under the supposedly more accommodating Biden.

This divergence underscores the importance of focusing on fundamentals rather than political developments when making investment decisions.

Actually, you might be surprised to learn that Biden has kept many of Trump’s tariffs in place and in many ways has been tougher with the Chinese.

Earnings season in focus…

The market will be closely watching corporate earnings reports, with approximately 30% of the S&P 500 companies reporting this week. The S&P 500 is expected to show 10% year-over-year earnings growth in the second quarter, driven by strong performances in the communication services, information technology, financials, and health care sectors.

For the full year, earnings growth of nearly 12% is anticipated, the highest since 2021, with broad-based sector growth expected except for energy and materials.

The “Magnificent Seven” significantly contribute to the S&P 500’s projected performance in the second quarter. Four of these companies are projected to be the top contributors to year-over-year earnings growth for Q2 2024: Nvidia (NSDQ: NVDA), Amazon (NSDQ: AMZN), Meta Platforms (NSDQ: META), and Alphabet (NSDQ: GOOGL).

Excluding these companies, the remaining S&P 500 firms would show a blended earnings growth rate of only 5.7% for Q2 2024, compared to an overall rate of 9.7% for the S&P 500 and 56.4% for the “Fab Four” (see chart).

Analysts also forecast robust earnings growth for these four companies in the latter half of 2024, alongside double-digit growth for the rest of the index starting in Q4 2024.

While political developments can influence market sentiment, the fundamental drivers of market performance, i.e. economic growth, interest rates, and corporate earnings, remain robust. Investors should stay focused on these factors and consider market dips as buying opportunities.

On Tuesday, the main U.S. stock market indices closed mostly lower as follows:

• DJIA: -0.14%
• S&P 500: -0.16%
• NASDAQ: -0.06%
• Russell 2000: +1.02%

The benchmark 30-year U.S. Treasury yield slipped 0.16% to settle at 4.47%.

Read This Story: Artificial Intelligence: Resistance Is Futile

Editor’s Note: Artificial intelligence (AI) remains a huge investment opportunity, as evidenced by the strong performance of the “Magnificent Seven.” However, you need to be wary of high valuations.

Perhaps you’re eyeing the Big Tech stalwarts that are making massive investments in AI. Well, they’re obvious plays on the trend and they’ve been trading at lofty heights.

How can you safely invest in AI? Consider the advice of my colleague Robert Rapier.

Robert Rapier is an income investing legend. He’s the chief investment strategist of Utility Forecaster, Income Forecaster, and Rapier’s Income Accelerator.

Robert has found a better way to make money from the AI super-boom, thanks to a group of under-the-radar tech plays. Robert is locked in on AI right now because of the incredible income opportunities it has created. To learn more, click here.

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John Persinos is the editorial director of Investing Daily.

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