MacroVoices #511 Robert Kahn: Geopolitical Outlook For 2026

Key Concepts

• Geopolitical factors, particularly tariffs and industrial policy, continue to significantly impact financial markets.
• The US midterm elections and affordability concerns are key drivers of policy decisions.
• Eurasia Group anticipates the US will remain central to global risk in 2026, focusing on trade and investment rules.
• A potential “dovish policy error” by the Federal Reserve in 2026, driven by political pressure, presents an asymmetric trading opportunity.
• Oil volatility is currently low despite a key technical inflection point, offering a potential trade opportunity.
• Market cracks are appearing in the AI sector, while uranium, the dollar, and precious metals present nuanced trading considerations.

Geopolitical & Policy Landscape (December 18th, 2025 - Early 2026)

As of December 17th, 2025, the S&P 500 closed at 6721 (down 240 basis points due to AI stock stress), the US Dollar Index at 98.40 (down 23 basis points), and February WTI crude oil at $55.81 (down 427 basis points, retesting year lows). February Arbob gasoline fell to $1.70 (down 449 basis points), while February gold rose to $4376 (up 360 basis points, approaching previous highs). March copper increased to $5.43 (up 150 basis points) and December uranium gained to $78.30 (up 136 basis points). The US 10-year Treasury yield increased to 4.15% (up three basis points).

Robert Khan of Eurasia Group highlights that tariffs, averaging around 17%, represent the largest tariff shock since the 1930s and are “disruption deferred, not disruption avoided.” A three-tier tariff structure is developing: approximately 30% on China, 10-15% on most other countries, and below 10% on Mexico and Canada. The administration is increasingly pivoting towards industrial policy, including direct intervention, deal-making, and contingent tariff relief. The upcoming midterm elections and the “affordability debate” are central concerns, with Democrats assigned an 80% probability of retaking the House, potentially leading to increased reliance on executive orders. Khan anticipates tariffs will remain a recurring feature of the administration’s policy.

Macroeconomic Outlook & Federal Reserve

The discussion centers on a potential “dovish policy error” in 2026, where a new, Trump-loyal Fed chair aggressively cuts rates despite inflationary pressures, potentially causing a “back of the curve revolting” (rising bond yields). This is considered a high-probability event, reminiscent of the market’s underestimation of the COVID-19 pandemic. While current FOMC members signal against further cuts, political pressure is expected to override dissent. The potential for a weaker Fed chair and increased dissent within the FOMC was also noted in the prior segment.

Eurasia Group’s Top Risks 2026

Eurasia Group’s upcoming “Top Risks” report (release around January 3rd) anticipates the US will remain central to global risk debates, focusing on the US’s efforts to “rewire the rules for global trade and investment” and the implications for domestic politics and constitutional rights. The report and related materials will be available on eurasagroup.net.

Trade of the Week: Oil Volatility

Patrick Szna proposes a long iron condor strategy on oil volatility, capitalizing on a potential significant price movement in either direction. The strategy involves:

• Buying the 53x50 put spread.
• Buying the 58x61 call spread.
• Net Debit: $1.
• Maximum Payoff: $2.
• Maximum Loss: $1.

This offers a 1:2 risk/reward ratio, with details available on page four of the accompanying chart deck. Big Picture Trading offers a webinar and 14-day free trial at bigpicturetrading.com.

Market Specific Observations

• AI Sector: The AI sector is showing cracks, with the semiconductor ETF (SMH) breaking below its 50-day moving average. A break below 340 on SMH or 6700 on the S&P 500 could signal increased volatility.
• Dollar: The dollar is in a downtrend, with 98 as a critical level. A break below 98 could accelerate the decline.
• Oil: A recent selloff in crude oil to near $55 is significant. A bounce is expected, but a break below $55 could lead to further declines, potentially testing $50. A long position using December 26/27 time spreads was initiated.
• Uranium: Despite long-term bullish fundamentals, uranium (URA) may be influenced by the AI sector’s performance. Long positions are being added, but caution is advised.
• Gold: Gold is trading at 52-week highs, with silver showing stronger momentum. A break above 4,400 could lead to a move towards 4,930-5,140.
• 10-Year Treasury Note: The 10-year Treasury yield has made a higher high, signaling a potential shift in trend.

Potential Trades & Variant Perception

While long gold is considered an obvious trade in the event of a dovish policy error, its popularity may limit returns. A curve steepener, based on Jim Bianco’s suggestion of a potential “revolt” in the back end of the curve, is being considered as a “variant perception” trade.

Conclusion:

The Macrovoices episode highlights a complex interplay between geopolitical risks, evolving economic policies, and potential market disruptions. The looming midterm elections, the administration’s shift towards industrial policy, and the potential for a dovish policy error by the Federal Reserve are key factors shaping the macroeconomic landscape. While specific trading opportunities are identified – particularly in oil volatility – a cautious approach is advised, emphasizing the need for asymmetric risk/reward profiles and careful monitoring of market signals. The overarching theme is one of heightened uncertainty and the potential for significant shifts in financial markets in 2026.