What Trump's State of the Union Could Mean for Investors in a Fearful Market Environment

President Donald Trump will deliver a State of the Union (SOTU) Address tonight to Congress and the rest of the world watching on television. The Constitution requires every President to address Congress and provide an update on what the President has done over the past year and key policy areas of focus moving forward. Trump's speech will begin at 9 p.m. ET.

The SOTU comes at a critical time for the U.S. and the world. Americans are grappling with affordability, as well as concerns about the economy, artificial intelligence, and Trump's tariffs, many of which were recently struck down by the Supreme Court.

Official White House Photo by Tia Dufour.

Following the Supreme Court's ruling, Trump over the weekend announced he plans to raise the global tariff rate from 10% to 15%, invoking Section 122 of the Trade Act of 1974 to do so. This enables the President to impose tariffs of up to 15% for up to 150 days, though Congress can authorize an extension.

Trump's SOTU is likely to be closely monitored, especially in today's tepid market. Here's what it could mean for investors.

The economy and foreign affairs are top of mind

Based on data from a 2020 MarketWatch article, the Dow Jones Industrial Average had an average move of -0.03% on the day following the SOTU between 1961 and 2020. Following Trump's third SOTU in his first term, the Dow rose 1.7%.

So what could Trump say to influence the market?

Since inflation surged following the pandemic, Americans have been struggling with affordability. People making what used to be considered strong annual salaries are living paycheck to paycheck, struggling to afford housing and save for retirement.

Progress on this issue could heavily influence voters when they head to the polls in November for midterm elections. The Trump administration has already begun efforts to try and quickly lower costs for Americans, but whether it will be enough remains to be seen. Investors will be particularly interested in tariffs because higher tariffs can increase inflation, which in turn can influence interest rates.

If Trump hints at raising tariffs in other ways, that could hurt the market. Given the many concerns about AI that have emerged in recent days, it would also be interesting to see whether Trump comments on the disruptive technology. The market also seems more concerned about a recession, given recent revisions to the jobs data and concerns about AI replacing many jobs.

There could be a market reaction if Trump announces certain economic initiatives, although the direction of the move will, of course, be influenced by what Trump says or doesn't say.

Finally, investors will be looking for comments relating to foreign policy. The administration has already removed the former President of Venezuela, and there has been ongoing news about potential military action in Iran, although, as of this writing, a nuclear deal between the U.S. and Iran still seemed to be on the table.

Furthermore, a task force led by U.S. military personnel recently contributed to an operation that just killed the head of a Mexican drug cartel. If Trump makes comments suggesting greater foreign intervention, it could create additional volatility in the market. Historically, however, stocks have risen following war announcements, according to Motley Fool research. Still, each war is different, complex, and unpredictable.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.