1. state-led capitalism and the dawn of a new market order
the year 2025 will go down as a turning point in the history of global financial markets. President Donald Trump's second term administration is attempting a more fundamental and structural transformation of the economic system that goes beyond the protectionism of his first term. it signals the beginning of "State-Sponsored Capitalism," in which the government steps down from its role as a mere regulator and becomes a direct participant in the marketplace, deploying capital as a shareholder and sponsor.
this report provides a detailed recap of the shock and recovery of the second Trump administration's policies to markets in 2025, and builds on this to provide a comprehensive analysis of the macroeconomic environment and key investment themes that will unfold in 2026 and beyond, including the market's learning from the tariff shock dubbed "Liberation Day" and the new valuation framework created by the US government's direct equity stake in strategic assets such as semiconductors, core minerals, and space.
we are in an era of higher-order equations, with inflation, interest rates, and geopolitical risks coming into play, but amidst the chaos, there is a clear policy gravity of "America First," and capital is being driven by it. this report aims to provide macro insights and specific sector-specific responses that professional investors and strategists should consider essential as they reshape their portfolios for 2026.
2. macroeconomic Retrospective 2025: shocks, Adaptation, and Recovery
the U.S. economy in 2025 was a testing ground for the Trump administration's radical policies: two conflicting forces-fiscal stimulus and tariff barriers-hit markets hard, and investors had to endure unprecedented volatility to adapt.
2.1 The economic report card for 2025 and the story behind fiscal policy
the Trump administration's economic policy has been characterized by strong tax cuts and expanded fiscal spending. according to an analysis by the Congressional Budget Office (CBO), the tax cut extensions and new legislation will increase the federal debt by an estimated $3.4 trillion over the next decade. 1 However, this fiscal expansion has had a direct cash infusion effect on businesses and households in the short term.
increased corporate profits: The corporate tax cuts are estimated to have increased corporate profits by about $100 billion in 2025. 1 This has allowed companies to increase their capital expenditures (Capex) and strengthened their shareholder return policies.
preserving household incomes: Tax cuts are expected to boost consumer after-tax incomes by about $127 billion by 2026, supporting spending power even in a high-price environment.
these fiscal tailwinds, coupled with the start of the Federal Reserve's (Fed) rate-cutting cycle in late 2024, provided strong upward momentum for equity markets in early 2025. the labor market was stronger than expected, and consumption remained resilient to the aftershocks of higher interest rates.
2.2 The 'Liberation Day' shock and market crash
but on April 2, 2025, the market faced not a "black swan" but a "gray lino" (a risk that was foreseen). the so-called "Liberation Day," when President Trump announced sweeping tariffs, delivered the biggest shock to global asset markets since the 2020 pandemic.
panic in equity markets: The S&P 500, Nasdaq, and Dow Jones indices plunged in tandem immediately following the announcement, with tech and consumer staples sectors that rely heavily on global supply chains taking the brunt of the fall. Investor sentiment was extremely subdued, with the S&P 500 losing up to -12.1% intraday during the month of April.
seizures in the bond market: Even more severe problems occurred in the bond market. The combination of tariff-induced inflation fears and fears of widening fiscal deficits caused Treasury yields to spike (and bond prices to plummet). The yield on the 10-year Treasury rose nearly 50 basis points (0.5 percentage points) in the second week of April alone, the largest weekly increase since 2001. 3 This signaled the return of the "Bond Vigilantes" and added to the valuation pressure on equity markets.
2.3 Learning from volatility and the V-shaped rebound
what was interesting was the resilience of the market: after the panic selling in April, the market went through a learning process of interpreting Trump's tariff threats as 'bargaining leverage' rather than 'actual enforcement'.
the market began to stabilize in May, with investors buying bargains as they realized that the tariff shock would not completely undermine corporate earnings fundamentals. As a result, the S&P 500 Index hit a new all-time high in July, and the rally continued through October.
stabilization of the volatility index (VIX): After spiking to 55 in April, the VIX index quickly stabilized downward. this suggests that market participants have come to accept policy uncertainty as a constant and have begun to hedge against it.
2.4 H2 2025: A new equilibrium
in the second half of 2025, there were intermittent shocks, such as the reignited threat of tariffs on China in October, but the market reaction was different from April. while the semiconductor sector (Nvidia, AMD, etc.) fell sharply after President Trump's threat of additional tariffs on October 10, it was only a short-term correction. investors appeared to recognize this as a "bargain buying opportunity," suggesting that the market's tolerance has strengthened ahead of 2026.
3. macroeconomic outlook to 2026: the intensification of Trumponomics 2.0
2026 will be the year when the effects of the Trump administration's policies will be fully reflected in the real economy. Experts expect inflation and interest rates to find a new equilibrium ("New Normal") as "US Exceptionalism" continues.
3.1 Inflation and interest rates: 'Higher for Longer' redefined
the outlook for inflation in 2026 is stable, but a return to the low inflation era of the past is unlikely.
inflation bands: Inflation rates in advanced economies are expected to remain stuck in the 2% to 3% range. in the U.S., the TIPS market is pricing in future inflation in the range of 2.0% to 2.5%. this is slightly above the Fed's 2% target, but not enough to trigger a sharp rate hike.
rising interest rate floors: charles Schwab predicts that tax cuts will stimulate demand from high-income earners and businesses, keeping economic growth above potential (2% to 2.5%). As a result, even if the Fed lowers its policy rate, the floor is likely to be at the 3% level. in other words, the era of "zero interest rates" is over, and companies are being challenged to make money in an interest rate environment in the 3-4% range.
3.2 The duality of the labor market: slowdown and opportunity coexist
the biggest risk to the economy in 2026 is a slowdown in the labor market.
lower job creation: in 2025, the U.S. added only about 490,000 new jobs, down sharply from 2 million in 2024. while converging employment growth to zero is typically interpreted as a precursor to a recession, the current situation is a mix of labor supply shortages and structural changes driven by the adoption of AI, so interpretation should be done with caution.
sectoral polarization: While manufacturing and technology sectors may continue to experience job shortages, hiring slowdowns may be more pronounced in services and white-collar jobs. this could have a negative impact on consumer sentiment and could pressure the Fed to cut interest rates despite inflationary concerns.
3.3 Corporate profits and valuations: AI-driven growth
despite macroeconomic uncertainty, the outlook for corporate profits, a key driver of the stock market, is bright.
EPS growth is up: Market analysts have raised their 12-month forward earnings per share (EPS) growth forecast for S&P 500 companies to 14.4% from 11.1%. this is because AI-related investments are translating into tangible returns, and tax cuts are supporting companies' bottom lines.
Capex supercycle: by 2026, capital expenditures (Capex) by big tech companies (M7) are estimated to reach $520 billion. this is not just about the growth of tech companies, but a massive investment cycle that is creating a trickle-down effect across related industries such as power infrastructure, commodities, and construction.
4. the evolution of trade policy: tariffs, tactics beyond tariffs
trade policy in the second Trump administration has evolved into a more sophisticated and targeted form than in the first. Beyond simply improving the trade balance, tariffs are being utilized to achieve geo-economic goals of reshaping supply chains and protecting strategic industries.
4.1 The 2026 tariff policy scenario
by 2026, tariff policy will be in a state of flux. according to Jefferies' analysis, tariffs on some items are likely to be eased, foreshadowing mixed fortunes for companies.
tariff Easing Winners: Companies with global supply chain dependencies and high consumer price resistance, such as Nike (NKE), Tesla (TSLA), and Nvidia (NVDA), could see immediate margin improvement if tariffs are eased.
tariffsremain/increase: On the other hand, steel, aluminum, and industrial goods companies with production bases in the U.S. will gain market share while being protected by high tariff barriers.
4.2 Impact analysis by sector
sectorimpactmajor Companies and Tickersanalysis consumer Goods (Apparel/Toys) negative mattel (MAT), Nike (NKE), Hasbro (HAS)
highly import-dependent, facing upward pressure on costs in the event of tariffs, but could turnaround if tariffs are removed.
industrial Goods (Heavy Equipment) positive caterpillar (CAT), Deere (DE)
high domestic production, benefiting from increased infrastructure investment. potential to benefit from tariff rebates.
automotive neutral/Mixed ford (F), GM more volatile depending on whether Mexico/Canada tariffs are waived. compounded impact due to changes in EV subsidy policy. technology (Hardware) negative apple (AAPL), Dell (DELL) companies with heavy reliance on Chinese assembly face supply chain relocation costs.
5. paradigm shift: US sovereign wealth funds and state-led capitalism
the most significant structural change to watch in the market in 2025-2026 is the emergence of the U.S. government as the majority shareholder of "USA Inc." This signals a commitment from the home of free market economies to directly nurture and control strategic industries, borrowing in part from the Chinese model of state capitalism.
5.1 The launch of a US-style Sovereign Wealth Fund
on February 3, 2025, President Trump signed an executive order to establish a US sovereign wealth fund. this is more than just a way to raise revenue, it's a strategic tool to secure assets that are directly linked to national security and strengthen global economic leadership.
sovereign wealth fund structure and funding
because the United States is neither a trade surplus nor a resource-rich country, the way the sovereign wealth fund is financed is quite unique.
leveraging tariff revenues: president Trump has stated that he intends to utilize import tariffs as the primary source of revenue for the fund, which means that taxes collected from foreign companies will be used to support U.S. companies in a closed loop.
monetize assets: There is also talk of monetizing idle assets held by the federal government, such as land, mineral rights, and spectrum, or stockpiling confiscated cryptocurrencies (such as Bitcoin) as strategic assets.
purpose: In addition to reducing the fiscal deficit, the government is expected to aggressively deploy funds to acquire strategic technology platforms like TikTok, invest in equity stakes in high-tech companies, and acquire key resources overseas.
5.2 The Intel deal: signaling semiconductor nationalization
in August 2025, the announcement that the US government would acquire a 9.9% stake in Intel for $8.9 billion shocked the market. this was more than just a subsidy (CHIPS Act), it represented a fundamental change in the ownership structure of the company.
deal structure: The government purchased 4.33 billion shares of Intel common stock for $20.47 per share, and warrants to purchase an additional 5% stake in Intel's foundry division if its ownership fell below 51%, effectively blocking a spinoff or foreign sale of Intel.
market reaction and implications: Intel's stock price jumped 8.9% immediately after the announcement, which was good news in the short term. however, in the longer term, there are concerns about government interference in the company's business, pressure on job retention, and lower profitability. this means that Intel has moved beyond "Too Big to Fail" and into "State-Owned" territory, presenting investors with a dilemma: downside protection is in place, but explosive stock price gains (alpha) may be limited.
5.3 Core minerals: direct investment from the Department of Defense and a reassessment of valuations
the Trump administration has taken the unprecedented step of taking direct equity investments in private mining companies through the Department of Defense (DoD) in an effort to reclaim key mineral supply chains from Chinese domination.
analyzing key investment cases
MP Materials (MP):
what: DoD invested $400 million to take a 15% stake. offtake agreement for all rare earth magnets produced over the next 10 years.
unconventional terms: Guaranteed rare earth price floor of $110/kg, which guaranteed the company's revenue regardless of market price volatility and was a key driver of follow-on investment from private capital (JPMorgan, Goldman Sachs, etc.).
market reaction: Shares surged immediately after the announcement, creating expectations that the Department of Defense's "incubation" model, if successful, would spread to other mineral companies.
Trilogy Metals (TMQ):
what we invest in: a $35.6 million investment by the Department of Defense in Trilogy Metals, an Alaskan copper/zinc project developer, for a 10% stake.
market reaction: The day after the announcement, the stock price jumped 211%. this was a case of a risky project in the development stage being revalued to something closer to a "risk-free asset" by receiving a government guarantee check. the perception that "if the government buys it, the permits don't matter" was the main reason for the stock price spike.
Lithium Americas (LAC):
what: Approval of a $2.23 billion Department of Energy loan and acquisition of a 5% stake to develop the Thacker Pass lithium mine in Nevada.
strategic significance: a key project to develop the largest lithium deposit in the U.S. to internalize the electric vehicle battery supply chain.
6. in-depth sector analysis and 2026 investment strategy
based on the macroeconomic and policy changes analyzed above, we suggest key themes and sectors for investors to watch in 2026.
6.1 AI Infrastructure and Energy: A $520 billion opportunity
The AI revolution is still ongoing in 2026, and has now moved beyond software and into building physical infrastructure.
data centers and the power grid: Demand for data centers is exploding, with Amazon (AWS) investing heavily in building AI infrastructure dedicated to the U.S. government. This entails massive power consumption, and it's a boom time for utilities, especially nuclear and natural gas utilities that can provide reliable baseload.
benefiting from deregulation: the Trump administration's AI executive order significantly eases environmental regulations that have been a barrier to building data centers and expanding the electric grid. this will make infrastructure projects more profitable and accelerate the pace of construction.
6.2 Space Economy: a Target for the Next Sovereign Wealth Fund
the space industry is where the Trump administration's "America First" extends beyond Earth.
possible SpaceX IPO: Rumors are swirling that Elon Musk's SpaceX will seek an IPO in 2026. the company is estimated to be valued at $1.5 trillion, which would represent a huge valuation gain for early investor Alphabet.
lunar base construction and defense: the new space policy, which aims to build a lunar base and a space defense system by 2028, provides strong order momentum for small and mid-sized space companies like Rocket Lab and Intuitive Machines.
6.3 Defense: structural growth
geopolitical instability and the U.S. military buildup bode well for a long-term boom in the defense sector.
6.4 Investment portfolio strategy summary
themerecommended strategiesfeatured tickers and ETFsrisk Factors government Owned (Gov-Owned) Core (Overweight) Intc, mp, tmq, lac lower profitability due to government interference, political risk u.S. Prioritized (Reshoring) Satellite (Tactical) CAT, DE, U.S. Steel tariff policy changes, global economic slowdown critical Minerals (Critical Minerals) Growth (Growth) SETM ETF, COPX ETF, lithium/copper miners commodity price volatility, possible resurgence of environmental regulations AI & Energy Infrastructure Growth VST, CEG (utilities), NVDA, AMZN grid saturation, AI bubble bursting concerns
7. bottom Line: Ride the Waves of Volatility for Opportunity
the investment environment in 2026 is a paradoxical mix of uncertainty and clarity. while there will still be uncertainty, with markets moving on a single tweet from President Trump, the clarity of "invest where the US government puts its money" has never been clearer.
stories like Trilogy Metals' 211% one-day surge in 2025 and MP Materials' turnaround on the back of a Department of Defense guarantee teach us an important lesson. in the past, under free markets, government "picking winners" was criticized as inefficient, but in Trumponomics 2.0, it has become one of the most powerful sources of alpha.
investors should now move beyond traditional balance sheet analysis and make policy flows and executive orders from Washington a key part of their company analysis. Even amidst the noise of inflation and tariff wars, only those investors who pick up on the massive signals of state-driven capitalism will be able to reap the fruits of the coming supercycle.
[Source data: Key government investment and market indicators]
table 1. Major Trump Administration Direct Investments (2025)
company Nametickersectorinvestment Sizeshareholdingkey Terms and Remarks Intel Corp. INTC semiconductors 8.9 Billion ~9.9 CHIPS grant conversion. includes warrants contingent on maintaining foundry control. MP Materials MP rare Earths 400 Million 15 purchase of all rare earth magnets, guaranteed price floor ($110/kg). Lithium Americas LAC lithium 2.23B (including loans) 5 Supporting the development of the Thacker Pass mine. tied to Department of Energy loan approval. Trilogy Metals TMQ copper/Zinc 35.6 Million 10 ambler mine in Alaska. share price surged 211% the day after the announcement.
table 2. Summary of key macroeconomic forecasts to 2026
indicator2025 Estimate2026 Forecastimplications S&P 500 EPS growth - 14.4 percent AI investments and tax cuts accelerate earnings growth u.S. Inflation (CPI) < 3.0 2.0% to 2.5 stabilizing trend but upward pressure from tariffs federal Funds Rate (Fed Rate) bias toward lowering 3.0% (Lower Floor) prolonged high interest rates due to strong economy (Higher Floor) AI-related Capex - > $520 Billion big tech and government-led infrastructure investment surge