Finance
Trump pivot on tariffs shows Wall Street still has a seat at his table
Jamie Dimon, CEO of JPMorgan Chase, testifies during the Senate Banking, Housing and Urban Affairs Committee hearing titled Annual Oversight of Wall Street Firms, in the Hart Building on Dec. 6, 2023.
Tom Williams | Cq-roll Call, Inc. | Getty Images
With each passing day since President Donald Trump‘s sweeping tariff announcement last week, a growing sense of unease had begun to pervade Wall Street.
As stocks plunged and even the safe haven of U.S. Treasurys were selling off, investors, executives and analysts started to fret that a core assumption from the first Trump presidency may no longer apply.
Amid the market carnage, the world’s most powerful person showed that he had a greater tolerance for inflicting pain on investors than anyone had anticipated. Time after time, he and his deputies denied that the administration would back off from the highest American tariff regime in a century, sometimes inferring that Wall Street would have to suffer so that Main Street could thrive.
“It goes without saying that last week’s price action was shocking to see as the market has begun to rewrite completely its sense for what a second Trump presidency means for the economy,” said R. Scott Siefers, a Piper Sandler analyst, earlier this week.
So it came as a huge relief to investors when, minutes after 1 p.m. ET on Wednesday, Trump relented by rolling back the highest tariffs on most countries except China, sparking the biggest one-day stock rally for the S&P 500 since the depths of the 2008 financial crisis.
Despite a presidency in which Trump has tested the limits of executive power — bulldozing federal agencies and laying off thousands of government employees, for example — the episode shows that the market, and by proxy Wall Street statesmen like JPMorgan Chase CEO Jamie Dimon who can explain its gyrations, are still guardrails on the administration.
Later Wednesday afternoon, Trump told reporters that he pivoted after seeing how markets were reacting — getting “yippy,” in his words — and took to heart Dimon’s warning in a morning TV appearance that the policy was pushing the U.S. economy into recession.
Dimon’s appearance in a Fox news interview was planned more than a month ago and wasn’t a last-minute decision meant to sway the president, according to a person with knowledge of the JPMorgan CEO’s schedule.
Bond vigilantes
Of particular concern to Trump and his advisors was the fear that his tariff policy could incite a global financial crisis after yields on U.S. government bonds jumped, according to the New York Times, which cited people with knowledge of the president’s thinking.
“The stock market, bond market and capital markets are, to a degree, a governor on the actions that are taken,” said Mike Mayo, the Wells Fargo bank analyst. “You were hearing about parts of the bond market that were under stress, trades that were blowing up. You push so hard, but you don’t want it to break.”
Typically, investors turn to Treasurys in times of uncertainty, but the sell-off indicated that institutional or sovereign players were dumping holdings, leading to higher borrowing costs for the government, businesses and consumers. That could’ve forced the Federal Reserve to intervene, as it has in previous crises, by slashing rates or acting as buyer of last resort for government bonds.
“The bond market was anticipating a real crisis,” Ed Yardeni, the veteran markets analyst, told CNBC’s Scott Wapner on Wednesday.
Yardeni said it was the “bond vigilantes” that got Trump’s attention; the term refers to the idea that investors can act as a type of enforcer on government behavior viewed as making it less likely they’ll get repaid.
Amid the market churn, Wall Street executives had reportedly worried that they didn’t have the influence they did under the first Trump administration, when ex-Goldman partners including Steven Mnuchin and Gary Cohn could be relied upon.
But this last week also showed investors that, in his mission to remake the global order of the past century, Trump is willing to take his adversarial approach with trading partners and the larger economy to the knife’s edge, which only invites more volatility.
‘Chaos discount’
Banks, closely watched for the central role they play in lending to corporations and consumers, entered the year with great enthusiasm after Trump’s election.
The setup was as promising as it had been in decades, according to Mayo and other analysts: A strengthening economy would help boost loan demand, while lower interest rates, deregulation and the return of deals activity including mergers and IPO listings would only add fuel to the fire.
Instead, by the last weekend, bank stocks were in a bear market, having given up all their gains since the election, on fears that Trump was steering the economy to recession. Amid the tumult, it’s likely that reports will show that deal-making slowed as corporate leaders adopt a wait-and-see attitude.
“The chaos discount, we call it,” said Brian Foran, an analyst at Truist bank.
Foran and other analysts said the Trump factor made it difficult to forecast whether the economy was heading for recession, which banks would be winners and losers in a trade war and, therefore, how much they should be worth.
Investors will next focus on JPMorgan, which kicks off the first-quarter earnings season on Friday. They will likely press Dimon and other CEOs about the health of the economy and how consumers and businesses are faring during tariff negotiations.
Wednesday’s reprieve could prove short lived. The day after Trump’s announcement and the historic rally, markets continued to decline. There remains a trade dispute between the world’s two largest economies, each with their own needs and vulnerabilities, and an unclear path to compromise. And universal tariffs of 10% are still in effect.
“We got close, and that’s a very uncomfortable place to be,” Mohamed El-Erian, chief economic advisor of Allianz, the Munich-based asset manager, said Wednesday on CNBC, referring to a crisis in which the Fed would need to step in.
“We don’t want to get there again,” he said. “The more you get to that point repeatedly, the higher the risk that you’re going to cross it.”
The app icons for Revolut and Monzo displayed on a smartphone.
Betty Laura Zapata | Bloomberg via Getty Images
Financial technology firms were initially the biggest losers of interest rate hikes by global central banks in 2022, which led to tumbling valuations.
With time though, this change in the interest rate environment steadily boosted profits for fintechs. This is because higher rates boost what’s called net interest income — or the difference between the rates charged for loans and the interest paid out to savers.
In 2024, several fintechs — including Robinhood, Revolut and Monzo — saw a boost to their bottom lines as a result. Robinhood reported $1.4 billion in annual profit, boosted by a 19% jump in net interest income year-over-year, to $1.1 billion.
Revolut also saw a 58% jump in net interest income last year, which helped lift profits to £1.1 billion ($1.45 billion). Monzo, meanwhile, reported its first annual profit in the year ending March 31, 2024, buoyed by a 167% increase in net interest income.
Now, fintechs — and especially digital banks — face a key test as a broad decline in interest rates raises doubts about the sustainability of relying on this heightened income over the long term.
“An environment of falling interest rates may pose challenges for some fintech players with business models anchored to net interest income,” Lindsey Naylor, partner and head of U.K. financial services at Bain & Company, told CNBC via email.
Falling benchmark interest rates could be “a test of the resilience of fintech firms’ business models,” Naylor added.
“Lower rates may expose vulnerabilities in some fintechs — but they may also highlight the adaptability and durability of others with broader income strategies.”
It’s unclear how significant an impact falling interest rates will have on the sector overall. In the first quarter of 2025, Robinhood reported $290 million of net interest revenues, up 14% year-over-year.
However, in the U.K., results from payments infrastructure startup ClearBank hinted at the impact of lower rates. ClearBank swung to a pre-tax loss of £4.4 million last year on the back of a shift from interest income toward fee-based income, as well as expenditure related to its expansion in the European Union.
“Our interest income will always be an important part of our income, but our strategic focus is on growing the fee income line,” Mark Fairless, CEO of ClearBank, told CNBC in an interview last month. “We factor in the declining rates in our planning and so we’re expecting those rates to come down.”
Income diversification
It comes as some fintechs take steps to try to diversify their revenue streams and reduce their reliance on income from card fees and interest.
For example, Revolut offers crypto and share trading on top of its payment and foreign exchange services, and recently announced plans to add mobile plans to its app in the U.K. and Germany.
Naylor said that “those with a more diversified mix of revenue streams or strong monetization of their customer base through non-interest services” are “better positioned to weather changes in the economy, including a lower rates environment.”
Dutch neobank Bunq, which targets mainly “digital nomads” who prefer not to work from one location, isn’t fazed by the prospect of interest rates coming down. Bunq saw a 65% jump in annual profit in 2024.
“We’ve always had a healthy, diverse income,” Ali Niknam, Bunq’s CEO, told CNBC last month. Bunq makes money from subscriptions as well as card-based fees and interest.
He added that things are “different in continental Europe to the U.K.” given the region “had negative interest rates for long” — so, in effect, the firm had to pay for deposits.
“Neobanks with a well-developed and diversified top line are structurally better positioned to manage the transition to a lower-rate environment,” Barun Singh, fintech research analyst at U.K. investment bank Peel Hunt, told CNBC.
“Those that remain heavily reliant on interest earned from customer deposits — without sufficient traction in alternative revenue streams — will face a more meaningful reset in income expectations.”
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Americans have trillions of dollars of wealth locked up in their homes, and passing it on at death can get messy quickly.
The typical way of outlining who should get the house in a will can cause delays after death—so much so that most states have set up a new way for homeowners to document their wishes. It is called a transfer on death deed, and it has taken off in the past 15 years. New York and New Hampshire added the option last year.
These are blunt instruments, however, and they don’t account for all the complications of life. People make mistakes filling out the forms. Heirs get cut out inadvertently. The overall estate plan can conflict with the deed.
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Americans have trillions of dollars of wealth locked up in their homes, and passing it on at death can get messy quickly. (iStock)
And then it can go really wrong.
A Minnesota man named his niece as the beneficiary on one of these forms, but his ex-wife torched the home a few days after he died. That left his niece with just the land, and she lost a fight to get the insurance proceeds for the house. Courts ruled that he was the one insured but the form made the niece the sole owner, and the insurance didn’t cover her.
More people are having to decide whether to sell a home that has soared in value and pay a big capital-gains tax bill, or hold on to it to give to their children tax-free after they die.
Baby boomer homeowners hold $17 trillion in home equity. Three-quarters of them are planning to leave their current home or the proceeds from its sale to their children or other relatives, according to Freddie Mac.
Baby boomer homeowners hold $17 trillion in home equity. (iStock)
“There are so many pitfalls that you can step in,” said Frank Pugh, a lawyer in Leesburg, Va.
Traditionally, people with wealth write a will to outline what they want to happen with their property when they die. After death, a court then supervises the transfer of assets, a process known as probate that can be time-consuming and expensive.
To avoid probate, some people will set up a trust, and put their home and other assets in it, with detailed instructions for the trustee. But trusts, whereby the trustee distributes assets at death without court involvement, require attention to make sure assets are titled properly.
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Transfer on death deeds were created as a no-fuss option to avoid probate. It is akin to listing a beneficiary on a 401(k) or on a payable-on-death form for a brokerage account. When the homeowner dies, the beneficiary named on the deed gets the house right away.
“It’s the difference between off-the-rack and custom tailoring,” said Thomas Gallanis, a professor at George Mason University’s law school who was the principal drafter for a model law on TOD deeds in 2009.
Rules vary by state, but in most cases the deed needs to be notarized and recorded at the local courthouse where the property is located.
Rules vary by state, but in most cases the deed needs to be notarized and recorded at the local courthouse where the property is located. (iStock / iStock)
Homeowners can revoke a transfer on death deed at any time—which is unlike adding someone to a deed as a joint owner.
Lawyers use these deeds often, typically in conjunction with a trust, said Jen Gumbel, an estate planner in Rochester, Minn. She has seen deeds being invalidated because do-it-yourself owners fill them out themselves, failing either to describe the property accurately or to get a spouse to sign off. “These are really technical documents,” she said.
States are still making tweaks to the deed laws. Minnesota updated its law last year in response to the case in which the owner’s ex-wife torched the house. Beneficiaries are now covered by insurance for up to 30 days, as long as the owner gave a copy of the deed and beneficiary information to the insurer before dying.
Things can get more complicated when there is outstanding debt on the property. Skyler Woodard, a 32-year-old welder, has been in a fight for the roughly 200-acre family farm in Nodine, Minn., since 2018, when his father died of cancer.
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His parents bought the farm on a rent-to-own contract from his maternal grandparents in 1994. His father got it in a divorce settlement in 1999, and continued making the payments to the grandparents. His father named Woodard as beneficiary of the farm on a transfer on death deed, but the grandparents asserted it violated an anti-transfer provision in the contract and canceled the contract. The Minnesota Court of Appeals agreed with the grandparents, allowing them to take back the farm. The state Supreme Court declined to review the case.
“He was trying to give me the farm,” Woodard said. He is pursuing an unjust enrichment case against his grandmother now, because his father had made payments on the farm for 23 years. The lawyer for the grandmother had no comment.
A transfer on death deed might successfully pass along the house but still complicate how expenses, debts and taxes are paid, said Stacy Singer, national practice leader for trust and wealth advisory services at Northern Trust. Those are all things that can be spelled out in a will or trust but not in a deed.
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In one case that Singer handled, an 80-year-old man left his girlfriend his $700,000 house via a transfer on death deed. She got a surprise $25,000 tax bill to pay her share of the Illinois estate tax.
She probably could have avoided that tax bill if her boyfriend had just left her the house as a specific bequest in his will.
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