Last week, investors trimmed their holdings of US bonds and bought bitcoin in anticipation of former President Donald Trump winning the 2024 presidential election. Roundhill Investments CEO Dave Mazza joins Morning Brief to discuss the "Trump Trade" and how investors are digesting President Biden's decision to exit the race.

"As Trump was really beginning to lead in the betting markets and the prediction markets against Joe Biden post the debate, investors started positioning for that Trump Trade 2.0, which has a lot of similarities to the original Trump Trade, but is a bit different," Mazza explains. "In this particular case, I think investors were anticipating [interest] rate cuts on the short end of the bond yields and then actually an increase in rates on the long end, making the yield curve actually positive for the first time in many years."

However, now that Joe Biden has exited the race, all eyes are on Vice President Kamala Harris to choose her running mate:

"Vice President Harris can really show that she's putting together a credible campaign and the amount of money that was raised yesterday is maybe emblematic that we're going to see a much tighter race than what was happening. And that's why I think this week is going to be a bit messy for markets. It's going to be a big push-pull relationship between whether tech really can retake the charge, or small caps and other out-of-favor areas that saw that rotation last week can get a bid."

He notes that if Harris receives the Democratic nomination at the Democratic National Convention (DNC) in August, "investors should be prepared for more volatility." However, if Trump continues to lead in the polls, he believes that investors will feel more confident in sticking with the rotation associated with the Trump Trade.

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This post was written by Melanie Riehl