According to the Wisdom Wealth app, at the beginning of the new week, as US President Biden announced his withdrawal from the 2024 presidential election, investors began to focus on whether Biden's decision to end his re-election campaign and support Vice President Harris would increase or decrease the chance of Trump regaining power.

Zachary Griffiths, director of US investment grade and macro strategy at CreditSights, said: "The primary impact of this statement is likely to be more uncertainty, which typically sends the market into a safe haven mode, with stock markets seeing a sell-off and investors buying high-quality stocks."

Since a disastrous debate raised questions about 81-year-old Biden's chances of re-election, the financial markets have lowered his chances of success. They favor those who are seen as benefiting from the Republican Trump's advocacy for looser fiscal policy, higher trade tariffs, and weaker regulation.

This is reflected in the support for the US dollar, the rise in US bond yields, the rise in bank, medical and energy stocks, and bitcoin.

The question for investors is whether they should stick to this trade since Biden has dropped out of the re-election race. The market may see volatility as traders watch to see if Harris can get the party nomination and weigh whether she can gain enough momentum to challenge Trump's lead in the polls.

Dave Mazza, CEO of Roundhill Financial, said in a statement last Sunday: "Investors should expect a substantial increase in volatility. If Vice President Harris can quickly mobilize and make a substantive impact against Trump, then we can expect volatility to continue. However, if Trump continues to lead in the polls and investors believe his victory is inevitable, the 'Trump trade' will take over and volatility will decrease."

There is almost no historical data to interpret how the market will react. The most recent example of a sitting president not seeking re-election was Lyndon Johnson in 1968.

Grace Fan, managing director of GlobalData.TS Lombard's Global Policy Research, wrote in a report on July 17 that the new Democratic candidate means that the "Trump trade" will be volatile as the market re-adjusts its odds. However, she said that if Harris ultimately became the candidate, these bets "are unlikely to change significantly."

Bonds and currencies

If there is a higher chance that Trump will be re-elected as president, people generally expect the US dollar to be boosted. Trump's preference for low taxes and high tariffs is seen as stimulating inflation and interest rates, making the US dollar more attractive. Demand for the US dollar also increases in uncertain times due to its safe-haven status.

Faced with the appreciation of the US dollar, potential losers include the Mexican peso, among others.

Nevertheless, last week there were reports that in an interview in June, Trump pointed out that a strong US dollar hurt US competitiveness, and his campaign partner Pence had also made this point in the past. Under the influence of these comments, the US dollar-yen exchange rate fell.

"We do not believe this is the correct trade," strategists at Barclays said in a report last Sunday. "In our view, a second term for Trump would mean further strengthening of the US dollar, and the recent decline provides a good level for re-engaging long positions as recommended by us."

The conclusion that Trump could trigger inflation has also permeated the world's largest bond market, where traders are beginning to make a bet by buying shorter-term bonds and selling longer-term bonds, known as the "steep curve trade."

"As the probability of Harris winning and the Democrats winning the House of Representatives rises, concerns about further fiscal stimulus may diminish, easing some of the pressure on interest rates and the US dollar," said Steven Englander, a strategist at Standard Chartered Bank in New York. "However, it is too early to say that this electoral outcome will play out exactly as expected two weeks ago."

Over the past week, the spread between US high-yield bonds and European high-yield bonds has also strengthened, and flows into global junk funds have surged, positions that could benefit from a potential Trump victory.

"Unless there is a substantive change in Trump's prospects, traders may position themselves for a weaker US dollar, as there may be more verbal attacks on weaker currencies before November," said Mark Cranfield, a strategist at Bloomberg Markets Live. "Meanwhile, the outlook for US Treasuries will be more delicate. In the worry about expanding deficits, the steep curve trend may be prolonged, but this is within the framework of falling yields, as the Federal Reserve moves toward the first rate cut this year."

Energy and prison stocks.

The possibility of a Republican victory has boosted some markets, and the anticipated relaxation of Trump's regulations or views on oil and immigration will support these markets.

In June of this year, Trump told Republican senators that if elected, he would restart oil drilling in the Alaska National Wildlife Refuge, reversing the Biden administration's move to cancel leases in the frozen wilderness area.

Academy Securities' Director of Macro Strategy Peter Tchir said, "I like commodities and commodity-related stocks because I do think geopolitical risk has increased recently, as some adversaries/competitors may view it as a weakness and try to take advantage of what they see as US chaos."

In a report last month, Solita Marcelli, Chief Investment Officer for the Americas at UBS Global Wealth Management, wrote that if Trump wins the presidential election, Republican-controlled Congress "could impact" the renewable energy and non-essential consumer sectors.

Given Trump's tough stance on immigration, private prison stocks such as The GEO Group, Inc. (GEO.US) and CoreCivic, Inc. (CXW.US) have been on the rise.

Health insurance companies and bitcoin miners.

Some of the industries believed to benefit from potential easing of regulatory pressures under the Trump administration include health insurance companies such as UnitedHealth Group (UNH.US), Humana Inc. (HUM.US), and banks.

RBC Capital Markets analyst Ben Hendrix said last month that Trump's second term would ease regulatory and reimbursement obstacles that have weighed on managed care stocks.

In the financial sector, Trump has shown favor towards bitcoin miners. In June, the former president met with industry executives, saying he likes cryptocurrencies and will speak up for miners. Stocks of bitcoin miners such as CleanSpark (CLSK.US) and Riot Platforms (RIOT.US) may be in the spotlight.

Cannabis and renewable energy.

Industries that responded to the prospect of a Democratic victory during Biden's campaign included cannabis and renewable energy stocks, which may still be the case now that he has dropped out.

In May of this year, the US Department of Justice initiated a procedure to reclassify marijuana as a substance with lower danger, immediately impacting the industry. Since then, this momentum has gradually subsided, and the AdvisorShares Pure US Cannabis ETF (MSOS.US) has fallen by about 10% since Biden's disastrous defeat in June.

The Biden administration's support for electrification and blue and green hydrogen production has been a boon for clean energy stocks. An analysis by Bloomberg Intelligence shows that a Trump victory in November's election would threaten the US clean energy plan's milestone $369 billion American Clean Energy program.