The Biggest Trading Theme of 2026: Trump Who Can't Afford to Lose, The End of the International Order

Original Author: Xu Chao

Original Source: Wall Street News

Entering 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 a determination to reverse the situation at all costs, which will reshape the global asset pricing logic from energy to gold.

David Woo stated that to compensate for a severe polling deficit and avoid losing majority control in Congress, the Trump administration's policy focus has fully shifted towards winning the "affordability" debate. This means the ultimate trading theme for 2026 will shift from mere reflation to aggressive deflationary measures—particularly through forcefully controlling energy resources to significantly suppress oil prices, with the goal of lowering gasoline prices to a key psychological threshold before the election. This strategy aims not only to curb inflation but also to secure votes by improving the cost of living for the middle class.

Trump's previous actions regarding Venezuela mark the substantive end of the post-war, rules-based international order. This move is not driven by ideological considerations but by the desire to directly control energy resources, hoping to win the domestic "affordability argument" by substantially increasing supply. Trump's goal is to push gasoline prices down to around $2.25 per gallon by autumn, which will cause severe shocks to the crude oil market, with oil prices expected to drop to the $40-$50 range.

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

The Unloseable Midterm Elections

David Woo's analysis points out that the biggest backdrop for the 2026 macro narrative is the midterm elections. Although Trump dominated market trends in 2025, his approval rating currently hovers around only 40%, facing a massive 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 would descend into an endless nightmare of subpoenas and impeachment.

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

White House Chief of Staff Susie Wiles has clearly stated that Trump's campaign intensity in 2026 will be equivalent to that of the 2024 presidential election year. This political survival pressure will directly dominate US economic and foreign policy decisions, forcing the administration to adopt unconventional means to please voters, with the core lever being to solve the cost-of-living crisis.

A new structural bull market. Simultaneously, the market needs to be wary of the upcoming massive fiscal stimulus. It is expected that Trump will use tariff revenues to issue cash checks to low- and middle-income groups, which will create new upward pressure on the long end of US Treasury yields, fundamentally altering the macro liquidity environment in 2026.

New Energy Strategy: The Political Calculus of Lowering Oil Prices

To win the "affordability" debate, the fastest and most direct means for the Trump administration is to lower oil prices. David Woo stated that the fundamental motivation behind recent US actions targeting Venezuela is not ideological export but 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 lower US gasoline prices to around $2.25 per gallon by September or October.

For the market, this means one of the core trades for 2026 is shorting crude oil.

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

Tariff Rebates and the Reversal of the K-Shaped Economy

Besides lowering oil prices, another potential major move is large-scale fiscal stimulus. David Woo predicts a 65% probability that Trump will launch a new round of stimulus before the midterm elections. The specific path would be to use last year's massive tariff revenues to issue $2,000 "tariff rebate" checks to Americans with annual incomes below $75,000.

To ensure the bill passes Congress, Trump might bundle this rebate plan with an extension of Obamacare subsidies, which Democrats care about, and bypass Senate obstruction via a Reconciliation Bill. This strategy aims to transform the victims of the trade war (consumers) into beneficiaries, achieving a "win-win" in both geopolitics and the domestic economy.

This targeted stimulus for low- and middle-income groups, combined with increased disposable income from low oil prices, will benefit retailers serving mass consumption (Consumer Staples) and may reverse the current market consensus on a "K-shaped" economic recovery, potentially changing the situation where only the wealthy benefit.

The End of the International Order and the Gold Bull Market

The aggressive geopolitical means adopted by the US to control oil prices send a clear signal to the world: the rules-based international order has ended. David Woo believes that when the world's most powerful nation decides to act solely on might rather than rules, the international system that previously protected the interests of smaller nations ceases to exist.

This shift has profound implications for asset allocation:

Short Emerging Market Stocks: In a new order lacking rule-based protection, smaller nations face higher geopolitical risks, invalidating the traditional "convergence trade" logic.

Long Defense Sector: Security anxieties will force countries to significantly increase defense spending.

Long Gold: As the US no longer acts as the benevolent guarantor of the international order, the credibility foundation of the US dollar as a reserve currency is eroded. Against a backdrop of widening deficits and rising geopolitical realism, gold will become a key asset for hedging against a disorderly world. Even without a dollar collapse, gold still has over 10% upside potential.

The Biggest Risk: Stock Market and AI Bubble

Although Trump attempts to win over voters through livelihood policies, the stock market remains his "Achilles' heel."

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

The biggest risk point in the market currently is the bursting of the AI bubble. Wall Street widely expects AI-related capital expenditure to grow another 50% in 2026, but increasingly fierce model competition, hardware bottlenecks, and future return issues are making this consensus fragile. If earnings reports from tech giants (like Microsoft) show any signs of slowing growth, and retail investors stop buying the dip, the market could face a sharp correction, threatening Trump's re-election plans.