The stock market already had started focusing on the so-called Trump trade, though how much of the recent trading was due to increased odds of the former president’s victory increasing versus lower inflation and greater chances of a Federal Reserve rate cut are hard to parse. The

S&P 500

fell 2% last week and the

Nasdaq Composite

dropped 3.6%, even as the

Dow Jones Industrial Average

rose 0.7%.

Now, uncertainty is the name of the game. The first decision Democrats will need to make is who to nominate. Biden threw his support behind Harris, but other options include Michigan Gov. Gretchen Whitmer and California Gov. Gavin Newsom. Then, the market will start parsing the odds of the chosen candidate being able to beat Trump head-to-head.

Morgan Stanley

strategist Michael Zezas doesn’t see much uncertainty around policy, believing that investors will view whoever runs as likely to continue with current policies. Rather, the uncertainty it unlocks will be around the odds of a Trump win and Republicans controlling both the House and Senate.

“In any case, the change may drive investors to question if Trump will continue to be a heavy favorite and what, if any, changes to post-election policy paths are possible,” he explained.

For that reason, Zezas argued investors should watch the Trump trades. “[We] think the most impactful market takeaways are still those exposed to a potential Trump win, like curve steepeners from policy changes like tariffs & immigration,” he wrote.

Then again, if the market sees Biden’s departure as a reason to boost the odds of a Trump presidency, with all the tax cuts and deregulation he’s promised, stocks could rise out of the gate. But that doesn’t seem all that likely.

“Donald Trump is still the solid favorite to win the presidential election, but betting markets suggest he has a slightly lower probability of beating Harris rather than Biden,” wrote Paul Ashworth, chief North America economist at Capital Economics. “Harris will have a real chance to sell herself to the American public in the second presidential debate, currently scheduled for Sept. 10, although the Trump campaign could withdraw, not wanting to go toe-to-toe with the ex-attorney.”

As a result, uncertainty seems to be the name of the game. The Cboe Volatility Index, or VIX, already has increased in recent weeks, even with the odds of a Trump win rising, and it wouldn’t be a surprise to see the market’s fear index continue to rise.

“Biden stepping down is a whole new level of political uncertainty,” wrote Gina Bolvin, president of Bolvin Wealth Management Group. “This may be the catalyst for market volatility that is overdue.”

We’ll get our first glimpse of the reaction when futures trading begins at 6 p.m. Eastern time.

Write to Ben Levisohn at ben.levisohn@barrons.com