Good morning, and happy holidays! Greg McKenna here filling in for Sheryl.
The resolution of the U.S. election has CFOs increasingly confident heading into 2025. In Grant Thornton’s fourth-quarter survey of finance chiefs, 68% of those polled expressed optimism about the state of the economy, a 22-percentage point increase from Q3.
Wall Street is similarly bullish about tax cuts and deregulation boosting corporate profits under the incoming administration. In a recent CNBC survey, 70% of the chief investment officers, equity strategists, portfolio managers, and other investors polled think President-elect Donald Trump “will be great for the economy and markets.” Meanwhile, the VIX, popularly known as the Street’s “fear gauge,” has settled well below its long-term average.
One corner of the derivatives market—known colloquially as “crash protection”—may be telling a more complicated story, however. The CBOE SKEW Index, a cousin of the VIX, is an attempt to quantify “left-tail risk”—statistician-speak for a massive equity sell-off. The index hit an all-time high before markets closed on Christmas Eve.
The more famous CBOE Volatility Index, or VIX, measures the expected price fluctuations, or volatility, in S&P 500 call and put options that are “at the money,” meaning their strike price is identical to the underlying asset’s current market value. The SKEW, meanwhile, uses strikes that are “out of the money,” or well below market price.
Bill Sterling is GW&K Management’s global strategist and former chief international economist at Merrill Lynch. He told me that buyers are likely protecting themselves against unexpected market downturns in case other parts of Trump’s agenda—particularly regarding tariffs and mass deportations of immigrants—wreak havoc on equities.
To clarify, traders aren’t paying record prices for these doomsday options in absolute terms. Rather, as Nitin Saksena, head of U.S. equity derivatives research at Bank of America, put it to me, investors are “paying a record amount for crash protection relative to protection against the more moderate sell-off.” Technical factors, he added, complicate how much of the SKEW’s rise captures increased demand for hedging strategies.
That said, Sterling notes traders are preparing in case the self-described “Tariff Man” follows through on some of his more extreme proposals for taxing imports. Meanwhile, in Sterling’s view, the big wild card is Trump’s promises to carry out the “largest deportation program in American history.”
More than 8 million people are estimated to be working in the U.S. illegally. The Peterson Institute for International Economics modeled the removal of all those unauthorized workers as a negative supply shock that would lower GDP an estimated 7.4% by 2028.
“But nobody, I think, on Wall Street, believes anything like that is going to happen at this point,” Sterling said. “The mantra you hear is, ‘Take Trump seriously, but not literally.’”
Greg McKenna
greg.mckenna@fortune.com
Leaderboard
Spencer Raymond was appointed CFO of Chirisa Technology Parks (CTP), effective February 2025. In his most recent role as CFO of Rockpoint, he was responsible for a series of capital transactions, raising new debt and equity to facilitate the growth of the business. Before Rockpoint, Raymond was a pre-launch partner and cofounder of Pleasant Lake Partners.
Siobhan de Leeuw was appointed CFO of Dataprise, a provider of managed IT services and cybersecurity solutions. De Leeuw has more than 25 years of experience in strategic and operational finance. Her most recent position was VP of FP&A and sales operations at Everbridge. Before that, she held leadership roles at Savvis, CenturyLink, and Cable & Wireless.
Big Deal
Growing Up: Navigating Gen AI’s Early Years is a report by Wharton experts and marketing consultancy GBK Collective. The findings, based on a survey of more than 800 senior business leaders in large organizations, reveal a seismic shift in their attitudes and applications of AI in just a short period of time.
More and more companies are using generative AI across functions. Just 37% reported using AI weekly in 2023. In 2024, that number has risen to 72%. The companies that are prepared to pivot to generative AI when the technology matures are going to be more competitive and agile, the researchers find. "Companies that aren’t treating this as a transformative technology could be caught flat-footed," according to the report.
Going Deeper
Here are four Fortune weekend reads:
“Trump AI and crypto ‘czar’ role is being scaled back as David Sacks clings to Silicon Valley commitments” by Kali Hays
“There’s now a 40% chance the Fed will pivot back to hiking rates again next year, top economist says” by Jason Ma
“Warren Buffett once said ‘a house can be a nightmare if the buyer’s eyes are bigger than his wallet’ but thinks his $31,500 investment is one of his best” by Alicia Adamczyk
“4 daily habits of truly happy people” by Kristine Gill
Overheard
“A future-ready CEO must look at the company and ask, ‘What do you want to achieve over the next five to 10 years?’ This vision helps craft a strategic plan for the company, its people, and its growth.”
— Ash Athawale, senior managing director at Robert Half, told Fortune’s Ruth Umoh about why so-called “transformative leadership” is an essential skill for today’s aspiring CEOs. The story is part of the inaugural Fortune Next to Lead: The 25 Most Powerful Rising Executives in the Fortune 500.