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(Bloomberg) — Investors are set to start the week scrambling to decide if President Joe Biden’s decision to end his reelection campaign and endorse Vice President Kamala Harris increases or decreases Donald Trump’s chances of regaining power. 

The earliest opportunity for traders to respond comes as trading in currency markets picks up in Asia’s early Monday session. 

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In the weeks since a disastrous debate ignited concerns over 81-year old Biden’s ability to serve another term, financial markets downgraded his chances of success. They’ve generally favored trades seen benefiting from Republican Trump’s advocacy of looser fiscal policy, higher trade tariffs and weaker regulations. 

That’s taken the form of support for the dollar, rising US bond yields and gains in bank, health and energy stocks as well as Bitcoin.

The question for investors is whether to stick with such trades now that Biden has dropped his bid for reelection. Markets may be jumpy as traders wait to see if Harris secures her party’s nomination and weigh if she can then gather enough momentum to challenge Trump’s lead in the polls. 

“Investors should expect a spike in volatility,” Dave Mazza, chief executive officer of Roundhill Financial, said before Sunday’s announcement. “If Vice President Harris can mobilize quickly to give Trump a material run, then we should expect volatility to linger. However, if Trump continues to pull ahead in the polls and investors view his win as inevitable, then the ‘Trump Trade’ will take over and volatility will decline.”

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There is little historical data to use for a read on how markets will react. The most recent example of a sitting president not seeking a second term was Lyndon Johnson in 1968.

A fresh Democratic ticket means “Trump trades would wobble as markets recalibrate the odds,” Grace Fan, managing director of global policy research at GlobalData.TS Lombard, wrote in a July 17 note. Those wagers are “are unlikely to budge much,” however, if Harris is the eventual candidate, she said. 

Bonds and Currencies

The dollar is generally expected to get a boost if another Trump presidency looks more likely. Trump’s preferred mix of low taxes and high tariffs are seen as spurring inflation and interest rates, adding to the dollar’s appeal. The currency also experiences higher demand in periods of uncertainty thanks to its haven status.

Potential losers in the face of a rising dollar include the Mexican peso and Chinese yuan.

Still, the dollar fell against the yuan and Japanese yen last week after Bloomberg Businessweek published a June interview with Trump in which he noted a strong greenback had hurt American competitiveness, a point also made in the past by his running mate, JD Vance.

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“We do not think this is the right trade,” strategists from Barclays Plc said in a Sunday report. “A second Trump term would imply further dollar strength, in our view, and the recent dip provides good levels to re​-​engage with our recommended longs” such as the dollar against the yuan. 

The conclusion that Trump spells inflation has also seeped into the world’s biggest bond market, with traders embracing a wager that involves buying shorter-maturity notes and selling longer-term ones — known as a steepener trade. 

“As Harris’s odds have risen, so have the Democratic odds of winning the House,” said Steven Englander, a strategist at Standard Chartered Bank in New York. “If this is how it plays out, then fears of further fiscal stimulus may wane and take some pressure off rates and the US dollar. But it is still very early days on what may be a very different campaign than expected even two weeks ago.”

What Bloomberg’s Strategists Say…

“Unless there is a material change to Trump’s chances, traders will likely position for dollar weakness as there could be more verbal attacks against weak foreign currencies leading into November. Meanwhile, Treasuries will have a more nuanced outlook. Curve steepening is likely to extend amid concerns about larger deficits, but within a framework of falling yields as the Federal Reserve moves toward its first interest rate cut this year.”

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— Mark Cranfield,  Markets Live Strategist

See MLIV for more reaction

Energy, Prison Stocks 

The potential for a Republican victory has bolstered parts of the market expected to get support from Trump’s lighter regulatory touch or views on oil and immigration. 

Trump in June told Senate Republicans he would restart oil drilling in Alaska’s Arctic National Wildlife Refuge if elected, reversing a move by the Biden administration to cancel leases in the frozen wilderness. 

“I like commodities and commodity-related stocks because I do think the geopolitical risk has increased recently as some adversaries/competitors may view it as weakness and try and take advantage of what they perceive as confusion in the US,” said Peter Tchir, head of macro strategy at Academy Securities. 

Renewables and consumer discretionary sectors “could suffer” if Trump wins the presidency with a Republican Congress, Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management, wrote in a note last month. 

Private prison stocks like GEO Group Inc. and CoreCivic Inc. have been on the rise given Trump’s tough-on-immigration views.

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Health Insurers, Bitcoin Miners

Some sectors seen as benefiting from potentially less regulatory pressure under a Trump administration are health insurers, like UnitedHealth Group Inc. and Humana Inc., and banks. 

A second Trump term would ease regulatory and reimbursement headwinds weighing on the managed care stocks, RBC Capital Markets analyst Ben Hendrix said last month. 

Within financials, Trump has made overtures to Bitcoin miners. In June, the former president met with the industry’s executives, saying he loves cryptocurrency and would advocate for miners. Shares of Bitcoin miners such as CleanSpark Inc. and Riot Platforms Inc. could be in focus.

Cannabis, Renewables 

Sectors that have reacted to Democratic prospects while Biden was in the race included cannabis stocks and renewable energy shares, and this may remain the case now that he’s out. 

The Department of Justice in May started the process of reclassifying cannabis as a less dangerous substance, providing an immediate jolt to the industry. The momentum has since then faded, and the AdvisorShares Pure US Cannabis ETF has lost about 10% since Biden’s debate debacle in late June. 

The Biden administration’s support for electrification and blue and green hydrogen production has been a boon for clean-energy stocks. A November election win for Donald Trump will threaten $369 billion in US clean energy initiatives from the Biden administration’s landmark climate law, an analysis compiled by Bloomberg Intelligence shows.

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