Trump–Powell drama: Breaking down prediction markets

Yahoo

18-07-2025

Odds on binary event futures that President Trump fires Federal Reserve Chair Jerome Powell spiked midday on Wednesday following reports that the president had drafted a letter to fire Powell, which Trump then denied.
Yahoo Finance Markets and Data Editor Jared Blikre takes a closer look at the reaction of the binary event future odds compared to the S&P 500 (^GSPC) and 30-year Treasury yields (^TYX).
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News about President Trump lit up global markets yesterday as headlines about firing Federal Reserve chair Jerome Powell sent stocks plummeting as yields popped. On today's Stocks in Translation, we're going to look at prediction markets or binary market futures. And here's the definition. Uh, these are financial contracts regulated by the commodity futures trading commission that let you bet on whether a specific event will happen, paying one dollar if it does and nothing if it doesn't. It's either or, hence the term binary. And here is a chart of Thursday's price action in the S&P 500 and what was happening in the prediction market. And in green here, we have the S&P 500. Just as the odds, as all those headlines about President Trump possibly firing President, uh, excuse me, not President Powell, he's the chair of the Federal Reserve, we saw those odds go up and we saw the stock market go down. It was pretty, pretty well timed here. And what's interesting is that stocks were managed to recover all those losses and actually closed close to the highs of the day. But now I want to show you a second chart. This is the same prediction market versus the 30-year yield. And you can see here, they were actually going in the same direction. And unlike stocks, the 30 year did not come back all the way down. In fact, it stayed above that critical 5% level into the close as it did the very next day. So, there might have been some damage done there. And now I want to take a look at a longer term chart of these prediction odds and the S&P 500. This goes all the way back to January 30th, and I'm going to show you the S&P 500 tanking here. I'm just going to tracing that out here and recovering. And I don't think there's a longer-term correlation with these prediction market odds. So, I just want to establish that right now. I do want to I do want to say that it's pretty interesting that the prediction odds have increased for Powell getting fired as S&P 500 has been hitting record highs. But those prediction odds, at least on a closing basis by the end of the day, have never exceeded 25%. And intraday on Thursday, they actually hit 40%, but it never even got above 50%. So, since we've seen a lot of these binary betting futures kind of rising popularity over the years, I just wanted to show you a table that compares and contrast them with auction markets. And so that's what we would traditionally call the stock market or the bond market or even commodity markets. So, the first is the payout. In binary betting futures, we have all or nothing. That's one dollar or zero. And of course, in the stock market, it depends on the per share, the per share price. And that can go up, it can go down, and it goes, uh, fluctuates on a minute by minute basis. And then another addition, another factor is price. We have for binary betting, we have the implied price change versus the current market value as determined by market participants in these auction markets, the stock market, for instance. And then, as far as risk is concerned, we have a fixed mass loss, a fixed max loss in the binary betting. As I said, you can win a dollar and you can't lose more than zero dollars, or you can't go down to more than zero dollars. And in the stock market, things are going to fluctuate on a minute-to-minute basis. And then finally, the typical focus here for prediction markets, that's going to be on a single event. It might be what the Fed is going to do, it might be on Powell getting fired, it might be on an election. And of course, in auction markets and the stock market and bond market, we just have this on an ongoing basis. So, as we saw with last year's elections, sometimes these betting markets deliver accurate information, that's more so than traditional polls. And with controversial decisions becoming the norm, these markets are only likely to grow in size. So, tune into Stocks and Translation for more jargon busting deep dives, new episodes on Tuesdays and Thursdays on Yahoo Finances website or wherever you find your podcasts.