Quick Thoughts: State of the Union

Originally published in Stephen Dover’s LinkedIn Newsletter, Global Market Perspectives. Follow Stephen Dover on LinkedIn where he posts his thoughts and comments as well as his Global Market Perspectives newsletter.

Investment conclusions

• No significant new economic policy initiatives
• “Red line” announced for Iran to permanently renounce nuclear weapons increases the probability of US military action
• Some of the biggest surprises were what did not make it into President Trump’s speech, including no statements in support of digital currencies or financial deregulation

Tuesday evening, February 24, US President Trump delivered his annual State of the Union address to a joint session of Congress. In what follows, we outline the key implications of his speech for investors and capital markets.

Trump’s speech addressed broad areas of interest to financial market participants:

1) The US economy and the Trump Administration’s policy initiatives

2) Geopolitics, with a focus on the potential for military conflict with Iran

But it was also noteworthy what the speech did not reference—financial deregulation, digital finance and safeguarding the financial sector.

US economy and economic policy

Beyond his remarks about the state of the economy and his administration’s 2025 legislative achievements, President Trump offered no new concrete or politically likely economic initiatives for 2026.

That was largely to be expected for several reasons.

• The Trump Administration has already enacted most of its tax and spending plans in the 2025 One Big Beautiful Bill Act (OBBB Act). Changes to individual and corporate income taxes, as well as to spending in major discretionary programs (e.g., national defense or immigration control) are already established in law and unlikely to be revisited this year.
• The Republican Party’s shrinking majority in the House of Representatives has significantly reduced the latitude for significant new legislation.
• The Administration has filled most key economic posts, and Trump’s choice of Kevin Warsh to replace outgoing Federal Reserve (Fed) Chair Jerome Powell is already known.
• Following the widely anticipated Supreme Court ruling that struck down the 2025 Trump tariffs imposed under the International Emergency Economic Powers Act (IEEPA), the president has already moved to use Section 122 of the Trade Act of 1974 to impose across-the-board 15% tariffs.
• Trump stated that those new tariffs (under Section 122) will not require congressional legislation. According to the statute, however, that statement is only correct for a period of 150 days. Thereafter, Congress must either vote to approve their extension or, by law, they will expire.
• Trump does have other, more laborious alternatives for imposing tariffs. We think that the already negotiated tariff levels are likely to remain. However, Trump will have much less latitude to impose significant country-level tariffs.
• While Trump mentioned in his speech an alternative health care plan to the Affordable Care Act, the underlying legislation is yet to be written and is highly unlikely to be passed in the current divided Congress.
• President Trump announced a “rate payer protection program” agreement with artificial intelligence (AI) companies to address the rising cost of electricity driven by the enormous energy needs of AI data centers. The announcement was short on details and would also face the challenge of finding a majority in Congress to make it into law.
• Regarding tax-advantaged savings plans, President Trump underscored his support for “Trump Accounts,” 530A accounts for children born between 2025 and 2028, established in the OBBBA.
   

Foreign policy

Given the growing importance of geopolitics for financial markets, Trump’s remarks on foreign policy will draw particularly close attention. Most important, were his remarks on Iran. Trump suggested that the “red line” in the negotiations must be for Iran to renounce developing nuclear weapons forever. That demand may signal an impasse and, hence, the increased likelihood of US military action ahead.

Unaddressed issues

Finally, investors may take note of what President Trump did not address in his speech.

• President Trump made no mention of financial deregulation. To be sure, various deregulation initiatives are already underway via changes introduced by federal regulatory agencies, including commercial bank regulatory relief by the Fed.
• In the past, President Trump has been an advocate of digital currencies, but he did not mention digital finance in his speech.
• Trump also did not address measures to deal with dislocations that may ensue from new technologies, including those that have recently unnerved investors in the software sector.
• Trump omitted policy remarks to address potential risks in private credit, structured finance or rising household borrowing delinquencies (e.g., for credit card debt or auto financing).
• Overall, we do not think that this State of the Union address will have any significant effect on financial markets.