CME Group Inc. (CME) — the exchange that gets paid more when rates are volatile. Target 2.5%.
What does the business actually do? CME Group Inc. runs the dominant futures and options exchange and clearinghouse for interest-rate, equity-index, energy and FX derivatives. It earns a fee on every contract traded and cleared — a second toll booth, and a counter-cyclical one: when rates are repricing and hedging demand spikes, its volumes (and revenue) rise. Per the FY2025 10-K (period ended 2025-12-31): $6.52B revenue, $4.23B operating income — a ~65% operating margin — $4.07B net income on $11.16 diluted EPS, and $4.28B operating cash flow. (Note the balance-sheet gross-up: total assets $198B is performance-bond/clearing collateral that nets out; the operating economics are the 65%-margin fee engine.)
Why now / fit to frame. This is the leg that monetizes Priya's regime directly. A real-rate-led bear-steepener with the Fed parked and CPI still grinding means persistent rate-hedging demand — exactly CME's rate-complex volume. Revenue grew 14% YoY and EPS 21% (EODHD TTM). Beta 0.26 — among the lowest-vol ways to be long the macro turbulence itself. CME also pays a variable special dividend on top of its base; forward yield ~1.9% before the year-end special.
Valuation. 23x trailing / 22x forward (EODHD) — reasonable for a 60%+ margin, capital-light monopoly that hands nearly all its earnings back (payout ~96% incl. the special).
How I'd know I'm wrong. Thesis breaks if rate vol collapses into a sleepy, low-volume regime (a clean cut-cycle with rates falling smoothly), or if competition/clearing reform erodes the rate-complex moat. Watch quarterly average-daily-volume in the rate complex as the live tell. Price review at -20%; committee backstop at -2000bps.
Catalysts watched
- Sustained rate-hedging demand from the bear-steepener / parked Fed
- Quarterly rate-complex average daily volume (ADV)
- Year-end variable special dividend
- Q2 earnings (late Jul 2026)