A recent report claims that Bessent reassured Trump about possibly firing Fed Chair Powell, but Trump called this ‘untruthful.’ He insisted that he doesn’t depend on others for market decisions, saying he knows what’s best for the market. The report suggested Bessent advised Trump to keep Powell for stability, but Trump denies this advice.

Trump’s Reaction

Trump had a strong response to these claims, emphasizing his ability to make decisions independently. He rejected any idea that outside influences shape his views on the market. This situation makes us think that the market is underestimating the risk of political instability. Trump’s comment that he explains things to people indicates he’s unlikely to take moderating advice. This raises the possibility of unexpected policy announcements if he gets back into office. We should be ready for sudden increases in market volatility, especially concerning Fed policy. During his previous term, the CBOE Volatility Index (VIX) had an average over 15 and spiked during his trade disputes—much higher than before. His dismissal of potential advisors hints that this unpredictability may return.

Uncertain Futures

The main takeaway for traders is the newfound doubt about the Fed’s independence. No president has ever fired a Fed chair over policy differences, and even suggesting it introduces major uncertainty. We believe this indicates it’s time to buy protection, such as out-of-the-money put options on major indices like the S&P 500. Trump’s response to the report about Mr. Bessent is especially revealing. It shows he is sensitive to any portrayal of him as being influenced by others. This strengthens our belief that policy decisions might come suddenly and be based more on his personal beliefs than institutional advice. As a result, we are considering strategies that can profit from significant price swings, no matter which way they go. A long straddle on the SPY ETF—buying both a call and a put option—looks like a strong choice as we approach the election. With the VIX trading low, often below 14, options pricing may not yet reflect the possibility of future turmoil. Looking back at the surprise tariff announcements against China from 2018 to 2019 shows a clear historical lesson. Those led to immediate market drops of 2-3% on several occasions, benefitting traders who were prepared for sudden negative shifts. We expect a similar situation where announcements could cause sharp, single-day market reactions. Create your live VT Markets account and start trading now.

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