2026's Key Trading Themes: Trump's Full-Throttle Campaign and the Collapse of the International Order

Original Author: Xu Chao

Original source:Wall Street Journal Insights

As we move into 2026, global macroeconomic markets are undergoing a profound paradigm shift. Senior analyst David Woo believes that, under the immense pressure of the midterm elections, the Trump administration is demonstrating a determined resolve to turn the situation around at all costs, which will reshape the global asset pricing logic—from energy to gold.

David Woo stated that in order to make up for a significant polling deficit and avoid losing the majority in Congress, the Trump administration's policy focus has fully shifted toward winning the "affordability" debate. This means that the ultimate negotiation theme for 2026 will shift from mere reflation to radical deflationary measures—particularly by strongly controlling energy resources to significantly lower oil prices, with the goal of bringing gasoline prices down to a key psychological threshold before the election. This strategy is not only aimed at curbing inflation, but also at stabilizing votes by improving the cost of living for the middle class.

Trump's previous actions toward Venezuela mark the substantive end of the rules-based international order established after World War II. This move was not driven by ideological considerations, but rather aimed at directly controlling energy resources in order to win the domestic "affordability argument" by significantly increasing supply. Trump's goal is to bring gasoline prices down to $2.25 per gallon before the fall, which would cause a sharp shock to the crude oil market, with oil prices expected to drop to the range of $40 to $50 per barrel.

Woo warned that as the United States abandons its traditional role as a guarantor of the international system, global geopolitical insecurity will sharply increase, providing strong support for gold and benefiting the defense industry. Conversely, emerging market stocks will face the risk of valuation reassessment, as the security premium for smaller economies will disappear in an era of returning power politics.

David Woo's analysis points out that the largest macro narrative context in 2026 will be the midterm elections. Although Trump dominated market sentiment in 2025, his current approval rating hovers around 40%, facing a significant deficit of about 20 percentage points compared to historical norms. For Trump, if Republicans lose control of Congress in November, his second term could fall into an endless nightmare of subpoenas and impeachment proceedings.

Therefore, the political theme for 2026 is "to spare no effort" (throw the kitchen sink).

White House Chief of Staff Susie Wiles has clearly stated that Trump's campaign efforts in 2026 will be as intense as during the 2024 election year. This political pressure for survival will directly influence the U.S. economic and foreign policy decisions, compelling the government to adopt unconventional measures to please voters. The most critical lever in this effort will be addressing the cost-of-living crisis.

A new structural bull market is emerging. At the same time, the market needs to be cautious about the upcoming large-scale fiscal stimulus. It is expected that Trump will use tariff revenues to distribute cash checks to middle- and lower-income groups, which will create new upward pressure on long-end U.S. Treasury yields and completely transform the macro liquidity environment by 2026.

To win the debate on "affordability," the Trump administration's fastest and most direct approach is to lower oil prices. David Woo argues that the fundamental motivation behind the recent U.S. actions against Venezuela is not ideological promotion, but rather to directly control the country's oil resources (accounting for 18% of the world's proven reserves), thereby increasing supply and driving down global oil prices.

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

For the market, this means that one of the key trades in 2026 is shorting crude oil.

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

In addition to lowering oil prices, another potential major move is a large-scale fiscal stimulus. David Woo predicts a 65% probability that Trump will launch a new round of stimulus measures before the midterm elections. The specific approach would be to use the substantial tariff revenues collected last year to issue $2,000 "tariff rebate" checks to Americans earning less than $75,000 annually.

To ensure the bill's passage in Congress, Trump might bundle this tax rebate plan with the extension of Obamacare subsidies, which are a concern for Democrats, and use a reconciliation bill to bypass Senate obstruction. This strategy aims to transform the victims of the tariff war (consumers) into beneficiaries, thereby achieving a "win-win" outcome in both geopolitics and the domestic economy.

This targeted stimulus aimed at middle- and lower-income groups, combined with increased disposable income from low oil prices, will benefit retailers in the consumer staples sector that serve mass consumption. It may also reverse the current market consensus regarding a "K-shaped" economic recovery, suggesting that the current situation where only the wealthy benefit could potentially change.

America's aggressive geopolitical measures to control oil prices send a clear signal to the world: the rules-based international order has ended. David Woo argues that when the world's most powerful nation decides to act based on power rather than rules, the international system that once protected the interests of smaller countries no longer exists.

This shift has significant implications for asset allocation:

Shorting emerging market stocks: Under a new order lacking regulatory protection, smaller countries face higher geopolitical risks, rendering the traditional logic of "convergence trades" ineffective.

Defence sector long position: Security concerns will force countries to significantly increase their defence spending.

Going long on gold: As the United States no longer serves as a benevolent guarantor of the international order, the credit foundation of the dollar as a reserve currency is being eroded. Against the backdrop of widening deficits and the resurgence of geopolitical realism, gold will become a key asset for hedging against a disorderly world. Even without a collapse of the dollar, gold still has more than 10% room for appreciation.

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

David Woo warned that the current high valuations in U.S. stocks are approaching levels seen during the Internet bubble, and capital gains taxes are a significant source of federal revenue. A 20%-30% decline 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 point in the current market lies in the potential burst of the AI bubble. Wall Street generally expects AI-related capital expenditures to grow by another 50% by 2026, but increasingly fierce model competition, hardware bottlenecks, and concerns about future returns are making this consensus fragile. If financial 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, which in turn could threaten Trump's re-election prospects.