For this month’s installment of TWWDT, I am changing things up a little and offering some thoughts on how the incoming Trump administration will impact our industry.
Much like the rest of the country, I was convinced the election results would take weeks to sort out, so the quick resolution on election night made me think about what’s next earlier than expected. Exchange-traded futures and options, with their deep pools of liquidity and broad access and participation, are also well suited to transfer risk and reduce financial system stress during high-volatility periods like political and governmental transitions.
Given that this is not President-elect Trump’s first time in office, there are queues we can lean on to make educated estimations on what may transpire. Broadly speaking, I will break this analysis down into two sections, markets and regulation.
But before getting into the specifics, I would also like to give a well-deserved shoutout to the markets for predicting this result weeks ago. Although they are still operating in a regulatory gray zone (1), Kalshi and the other groups listing political contracts did an excellent job creating fair, equitable, and accurate markets for their customers during this election cycle. They are proving that transparent and regulated central limit order books can be applied to non-traditional markets with successful results. I anticipate more markets, and for more specific results, will be listed going forward.
Markets
As a refresher, the first term of President Trump provided for some periodic market or stock-specific volatility, sometimes as a result of late-night/early-morning tweets by the president. Given that the president hasn’t been as prolific a user of X this election cycle, it’s to be determined whether these volatility events will occur as frequently with the incoming administration. But traders certainly should reactivate their Trump tweet notifications and definitely look into opening a profile at “Truth Social,” as he is posting there with frequency.
On a macro level, the overwhelming result of the election (and the subsequent down-ballot elections) indicates President Trump has a mandate to effect change for the American people, at least until the 2026 elections when one or both houses of Congress likely return to the Democrats. (I don’t intend to get partisan here, it’s a historical fact that Americans only allow a majority rule for a finite period, usually one election cycle).
In the last twenty-five years it has only occurred four times, with the longest cycle lasting four years during the height of the “war on terror” in the middle of President W. Bush’s term:
- Democrats (2021-2023): Biden presidency with narrow control of both chambers
- Republicans (2017-2019): First two years of Trump presidency
- Democrats (2009-2011): First two years of Obama presidency
- Republicans (2003-2007): During George W. Bush’s presidency
Given the landslide result of this election and the anticipated short window of opportunity, it’s very likely President-elect Trump and his team will start implementing policy change as soon as he removes his hand from the Bible on Inauguration Day. (2)
While there are very few levers a president can pull to directly impact markets, no matter what credit or blame he takes for it occurring (unless it’s a tweet indicating the start of a trade war) (3), the mandates, specifically on immigration, tariffs, and taxes, on which Trump has built his platform will provide ample opportunities for market volatility in multiple sectors. As this pertains to our industry, currency, interest rate, and commodity contracts such as agriculturals and energy may be particularly well suited to hedge risk or speculate on market movements during this period.
While immigration in and of itself is hardly a market mover, two questions stand out: who’s going to pay for all the immigration initiatives (whether it’s deportations, more border security, etc.), and who’s going to do the jobs of the folks being deported? Let’s also not forget that Trump will probably determine that these 11 million people (just the most recent influx under the Biden administration)(4) need to be deported somewhere – how is that going to impact the economies of those places?
On the tariff side, Trump is a fan of a weaker dollar as it makes US goods cheaper and more competitive, but during Trump’s first term, the tariff imposed on China strengthened the dollar. Given the sheer size of the tariff increase planned during this term, it is anticipated to again strengthen the dollar, at least initially. How these compromises play out will have downstream effects on the markets, from currencies and interest rates to commodities.
As far as taxes are concerned, a prime initiative of the administration is to prolong the original 2017 Trump-era tax cuts(5) before they expire in 2025. In addition, during the campaign, Trump discussed extending these tax cuts to include tip and social security income. The lost tax revenue of these initiatives may raise government borrowing costs and apply pressure on the fixed-income market.
Trump is an avowed skeptic of EVs(6) (his newfound BFF Elon Musk notwithstanding), so it’s anticipated oil rig counts will increase as he incentivizes the oil industry to pump more oil with the intention of lowering the price of gas at the pump (bearing in mind his vow to fight inflation)(7). He has also committed to exploring other means of power generation in search of energy independence, which should ultimately lower energy costs in the intermediate to longer term.
From a Fed perspective, during his first term Trump was continuously stymied in his attempts to influence monetary policy (i.e. trying to lower interest rates) by the Federal Reserve. Chairman Powell (a Trump appointee) has indicated he will not step down(8) ahead of his term ending in 2026 and is committed to maintaining Fed policy independent of the administration’s policy pressure. This does have the makings of a dramatic faceoff and should be closely watched.(9)
Taken together, these anticipated administration initiatives will create ample opportunities for market volatility across a wide variety of CME Group asset classes. In addition, given Howard Lutnick’s increasing engagement with the administration (10) (most recently as headhunter-in-chief), I don’t see how he’s going to be able to devote the time and resources required to nourish and grow FMX. It will also be fascinating to see if leaders we know from the fixed-income or futures industry assume positions in the administration as Trump has already appointed former US Senator and ICE Chief Communications Officer Kelly Loeffler to co-chair his inaugural committee. (11) Retirement can’t be that fun, Mr. Damgard?
Regulatory(12)
From banking to crypto to consumer protections, President-elect Trump has promised an overhaul of federal regulatory posts and a positioning of his appointments as more business-friendly.
First and foremost, Trump has promised to fire Gary Gensler, the current chairman of the SEC who has been dogged by his relations with FTX and SBF. I predict Mr. Gensler will resign (taking a leap here) and not give President Trump the satisfaction.
With Mr. Gensler removed, the SEC will most likely drop many of the initiatives currently on the table, including cybersecurity regulation, climate and ESG disclosure rules, and market structure reform, as well as the ongoing lawsuits and Wells notice investigations with various members of the crypto community.
It’s conceivable President-elect Trump could nominate current commissioner Hester Peirce to chair the SEC, as he originally appointed her, and her term on the commission is set to expire in 2025. Ms. Peirce has been a vocal critic of Chair Gensler during his time running the committee, is crypto-friendly, and is an advocate for financial market innovation. In my opinion, in her time in the public forum, she has consistently advocated for common-sense market-based approaches to industry issues and would be a breath of fresh air as chair of the SEC.
Over on the CFTC side, Chair Behnam will most likely step down and be replaced by one of the existing commissioners sitting in a “Republican” seat. For those who are unaware the CFTC has five commissioners, with seats filled evenly between Republicans and Democrats, and the chair representing the political tie-breaker as a representative of the party in favor.
Chair Behnam was originally appointed by President Trump back in 2017 as a commissioner on a Democrat seat, and I have appreciated his commitment and consistency for the industry both as a commissioner and chair over the past 8 years.
All in all, I feel that the principles-based regulatory framework followed by the CFTC could be a model the incoming Trump administration uses when evaluating the efficacy of other existing acronym agencies, who will all be asked to do as much or more with fewer resources (the money for other administration mandates has to come from somewhere, after all) for the next four years.
Further downstream from the industry, the outcome is less clear, although it’s highly likely the chairs of the FTC (Federal Trade Commission), Comptroller of the Currency, and FDIC (Federal Deposit Insurance Corporation) will all turnover and subsequently loosen Biden-era restraints placed on bank capital, bank lending, and industry mergers & acquisitions (SpiriTier Airlines anyone?). There has also been talk of finally ending government control of Fannie Mae and Freddie Mac.
Given the Republican-controlled Congress, Senate confirmations will go quickly and President Trump should face few issues getting his nominees vetted and in place early in the administration. If nothing else, markets want clarity and decisiveness (as evidenced by the post-election day market rally), and President-elect Trump will likely spend little time delivering that, powered by the mandate of the American electorate.
(2) https://www.wsj.com/politics/elections/what-trump-canand-cantdo-on-day-one-a90a8799?mod=hp_lead_pos2
(3) https://www.cnn.com/2019/08/23/politics/donald-trump-china-tariffs/index.html
(5) https://www.investopedia.com/taxes/trumps-tax-reform-plan-explained/
(6) https://www.cnbc.com/2024/11/06/trump-reelection-what-it-means-for-evs.html
(7) https://www.aei.org/economics/trump-and-nuclear-energy-there-are-questions/
(8) https://www.cnbc.com/2024/11/07/powell-trump.html
(9) https://www.wsj.com/economy/central-banking/powell-trump-fed-firing-ac7088e6?mod=hp_lead_pos1