President Joe Biden has chosen to step down from his position, causing a stir in the stock market and sparking speculation about the potential Democratic nominee.

What Happened: The President’s decision, though not entirely unforeseen, has ignited the stock market. Recent polls had shown a widening lead for Donald Trump over Biden, following a lackluster debate performance, a failed assassination attempt on Trump, and the Republican convention.

The stock market had already begun shifting its focus towards the so-called “Trump trade,” reports Barron’s.

However, it’s still unclear how much of the recent trading activity was due to the increased likelihood of a Trump victory versus lower inflation and greater chances of a Federal Reserve rate cut.

Last week, the S&P 500 fell 2%, and the Nasdaq Composite dropped 3.6%, while the Dow Jones Industrial Average rose 0.7%.

Also Read: Biden’s Exit From Presidential Race Sparks Massive Reactions From First Lady, Gavin Newsom, Marjorie Taylor Greene And More — Read The Reactions Here

With Biden’s departure, the Democrats are now left with the task of deciding on a nominee. Biden has endorsed Vice President Kamala Harris, but other potential candidates include Michigan Governor Gretchen Whitmer and California Governor Gavin Newsom.

According to Morgan Stanley strategist Michael Zezas, the policy uncertainty is minimal, as investors expect the current policies to continue under any candidate.

"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 said.

However, the odds of a Trump win and a Republican-controlled House and Senate add to the uncertainty.

Why It Matters: The Cboe Volatility Index, or VIX, has already seen a rise in recent weeks. If the market interprets Biden’s exit as increasing the chances of a Trump presidency, stocks could potentially 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.”

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