The biggest trade theme in 2026: Trump's "can't-lose" mentality and the end of the international order.

Author: Xu Chao , Wall Street Insights

As we enter 2026, the global macro market is undergoing a profound paradigm shift. Senior analyst David Woo believes that facing immense pressure from the midterm elections, the Trump administration is demonstrating its determination to turn the tide at all costs, which will reshape the pricing logic of global assets, from energy to gold.

David Woo stated that to compensate for a significant polling disadvantage and avoid losing its majority in Congress, the Trump administration has shifted its policy focus entirely to winning the "affordability" debate. This means the ultimate deal for 2026 will shift from simple reflation to aggressive deflationary measures —particularly by forcefully controlling energy resources to drastically lower oil prices, aiming to bring gasoline prices down to a key psychological threshold before the election. This strategy is not only intended to curb inflation but also to solidify votes by improving the cost of living for the middle class.

Trump's previous actions against Venezuela marked a substantial end to the rules-based international order established after World War II. This move was not driven by ideological considerations, but rather by a desire for direct control of energy resources, aiming to win a domestic "affordability argument" through a significant increase in supply. Trump's goal is to push gasoline prices down to $2.25 per gallon by the fall, which will have a severe impact on the crude oil market, with prices expected to fall to the $40-$50 range.

Woo warns that global geopolitical insecurity will rise sharply as the US relinquishes its traditional role as guarantor of the international system, providing strong support for gold and benefiting the defense industry. Conversely, emerging market stocks will face the risk of valuation reassessment, as the safety premium for smaller economies will disappear in an era of returning power politics.

The midterm elections that we cannot afford to lose

David Woo's analysis points out that the biggest backdrop to the 2026 macro narrative is the midterm elections. Although Trump controlled market trends in 2025, his approval rating currently hovers around 40%, a significant deficit of about 20 percentage points compared to historical patterns. For Trump, if the Republican Party loses control of Congress in November, his second term will be mired in an endless nightmare of subpoenas and impeachment.

Therefore, the political theme for 2026 is "throw the kitchen sink" at all costs.

White House Chief of Staff Susie Wiles has made it clear that Trump's campaign in 2026 will be as intense as it was in the 2024 election year. This political survival pressure will directly dominate US economic and foreign policy decisions, forcing the government to adopt unconventional methods to appease voters, with addressing the cost of living crisis being the most crucial element.

A new structural bull market is emerging. However, the market needs to be wary of the impending large-scale fiscal stimulus. It is expected that Trump will use tariff revenue to issue cash checks to low- and middle-income groups, which will put new upward pressure on long-term US Treasury yields and fundamentally change the macroeconomic liquidity environment in 2026.

New Energy Strategy: The Political Cost of Lowering Oil Prices

To win the "affordability" debate, the Trump administration's quickest and most direct tactic is to suppress oil prices. David Woo stated that the fundamental motivation behind the recent US actions against Venezuela is not ideological export, but rather to directly control the country's oil resources (accounting for 18% of global proven reserves), thereby increasing supply and suppressing global oil prices.

The goal of this strategy is to reduce U.S. gasoline prices to around $2.25 per gallon by September or October.

For the market, this means that one of the core trades in 2026 will be shorting crude oil.

David Woo predicts that crude oil prices could fall to a high of $50 or even $40 by the end of the year. This geopolitical move will make OPEC the biggest loser, significantly weakening its market control, while oil-importing countries such as India and Japan will benefit.

Tariff rebates and the reversal of the K-shaped economy

Besides lowering oil prices, another potentially major measure is large-scale fiscal stimulus. David Woo predicts there is a 65% probability that Trump will introduce a new round of stimulus before the midterm elections. Specifically, this would involve using the huge tariff revenue collected last year to issue $2,000 "tariff refund" checks to Americans earning less than $75,000 annually.

To ensure the bill's passage in Congress, Trump may bundle the tax rebate plan with the extension of the Obamacare subsidy, a matter of concern to Democrats, and circumvent Senate obstruction through a reconciliation bill. This strategy aims to transform the victims (consumers) of the tariff war into beneficiaries, thereby achieving a "win-win" situation both geopolitically and domestically.

This targeted stimulus for low- and middle-income groups, combined with increased disposable income due to low oil prices, will benefit consumer staples and may reverse the current market consensus on a "K-shaped" economic recovery, in which only the wealthy will benefit.

The End of the International Order and the Gold Bull Market

The aggressive geopolitical tactics employed by the United States to control oil prices send a clear signal to the world: the rules-based international order has come to an end. David Woo argues that when the world's most powerful nation decides to act solely on power rather than rules, the international system that once protected the interests of smaller nations ceases to exist.

This shift has a profound impact on asset allocation:

The biggest risks: stock market and AI bubble

Despite Trump's attempts to win over voters with his livelihood policies, the stock market remains his Achilles' heel.

David Woo warned that current high valuations in the US stock market are approaching those of the dot-com bubble era, and that capital gains taxes are a significant source of federal tax revenue growth. A 20-30% drop in the stock market would not only trigger an economic recession but also lead to a sharp deterioration in the fiscal deficit.

The biggest risk in the market right now lies in the bursting of the AI bubble. Wall Street generally expects AI-related capital expenditures to grow by another 50% by 2026, but increasingly fierce competition in models, hardware bottlenecks, and questions about future returns are making this consensus fragile. If earnings reports from tech giants (such as Microsoft) show any signs of slowing growth, and retail investors stop buying on dips, the market could face a sharp correction, potentially threatening Trump's re-election plans.