Markets are watching President Trump’s upcoming State of the Union Address (SOTU). Ahead of the speech, demand is rising for safe-haven assets. The address is expected to restate an “America First” plan, and investors are waiting for clearer details on tariffs.
Reports suggest the speech may also cover cost-of-living steps. These could include a 10% cap on credit card interest rates, lower prescription drug prices, and limits on corporate activity in the housing market. The SOTU may also serve as a platform tied to the 2026 midterm elections.
Policy Priorities And Market Implications
The agenda described includes pushing for much lower interest rates and a smaller Federal Reserve balance sheet. It also includes a goal of lifting US growth to 15%. Another focus is how to keep tariffs in place after a Supreme Court ruling. Options mentioned include using short-term emergency statutes first, then moving to more permanent tariffs based on investigations.
Tariffs are framed as tools to raise revenue to replace or offset federal income taxes, pressure trade partners into deals, and push companies to move manufacturing back to the US. The latest tariff episode is also described as adding political risk. That risk may weaken the dollar’s usual safe-haven appeal, leading to smaller and more short-lived rallies. This does not suggest an immediate USD crisis.
With the SOTU close, demand for portfolio protection is clear. The VIX, a key gauge of market fear, has pushed March futures up to 24.5. This reflects concern about the President’s populist “America First” agenda. Derivatives traders may want options that profit from big moves in either direction, as policy surprises look likely.
The push for much lower rates puts the White House on a collision course with the Federal Reserve. January CPI data showed core inflation still high at 3.1%. This conflict could drive sharp swings in the bond market. Positions in interest-rate derivatives, which focus on changes in future rate expectations, may help hedge against sudden policy shifts.
Trading And Hedging Considerations
A tougher tariff stance may be changing the US dollar’s role as a safe investment. A similar pattern appeared in 2025 during renewed trade disputes, when dollar rallies faded quickly as political risk outweighed safe-haven demand. Traders may want to hedge long-USD exposure or consider other havens, such as the Swiss franc, since any dollar strength could fade fast.
Targeted threats, such as talk of 25% tariffs on European auto parts, create concentrated risks for specific sectors. This argues for focused trades rather than broad market positions. Traders could consider put options on ETFs tied to global industrials and automakers that would be hit directly by new trade barriers.
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