Markets are focused on President Trump’s upcoming State of the Union Address (SOTU), with demand for safe-haven exposure ahead of the event. The speech is expected to restate an “America First” economic approach, and markets are awaiting details on tariff policy.
Expectations include discussion of affordability measures such as capping credit card interest rates at 10%, lowering prescription drug prices, and limiting corporate involvement in the housing market. The SOTU is also expected to be used as a platform linked to the 2026 midterm elections.
Policy Priorities And Market Implications
The agenda described includes pursuing much lower interest rates and a smaller Federal Reserve balance sheet, and aiming to lift US growth to 15%. It also includes seeking ways to maintain tariffs after a Supreme Court ruling, including use of short-term emergency statutes before moving to more permanent, investigation-based tariffs.
Tariffs are presented as tools to generate revenue to replace or offset federal income taxes, press for trade deals, and encourage companies to move manufacturing back to the US. The latest tariff episode is described as adding political risk that may reduce the dollar’s usual haven appeal, making rallies shallower and more episodic, without implying an imminent USD crisis.
With the State of the Union address imminent, we are seeing a clear demand for portfolio protection. The VIX, a key measure of market fear, has seen its March futures climb to 24.5, reflecting anxiety over the President’s populist and “America First” agenda. Derivative traders should consider buying options that profit from sharp market moves in either direction, as policy surprises are highly likely.
The push for much lower interest rates creates a direct conflict with the Federal Reserve, especially as January’s CPI data showed core inflation remaining stubborn at 3.1%. This tension between the White House and the Fed will likely lead to significant volatility in the bond market. We believe positions in interest rate derivatives, which bet on shifts in future rate expectations, are warranted to hedge against a sudden policy change.
Trading And Hedging Considerations
The aggressive tariff stance is changing the US dollar’s role as a safe investment. We saw a similar pattern in 2025 during the renewed trade disputes, where the dollar’s rallies were short-lived as political risk offset its haven appeal. Traders should look to hedge long-dollar positions or even favor other havens like the Swiss franc, as any strength in the dollar may quickly fade.
Specific threats, like the chatter about potential 25% tariffs on European auto parts, create clear risks for certain sectors. This calls for surgical plays rather than broad market bets. We are suggesting that traders look at buying put options on ETFs exposed to global industrials and automakers that would be directly impacted by new trade barriers.
