TD Cowen 2026 U.S. Policy Risks and Their Impact on U.S. Stock Market

Based on TD Cowen’s latest policy risk warnings and current market data, I provide a comprehensive investment impact analysis for you.

According to a report by TD Cowen’s Washington policy team, the range of policy outcomes for 2026 “could be the widest ever”, with “significant” risks on both the left and right tails [1]. The institution warns that policy uncertainty will be a key driver of market trends.

While TD Cowen has not fully disclosed all 10 risks in public reports, based on aggregated information from multiple sources, the confirmed key risks include [1][2]:

1. Tax Policy Reform (OBBA)
   - Including tip tax exemption and expanded tax deductions
2. IEEPA Tariff Ruling
   - Historic Supreme Court ruling on the legal basis for tariffs
3. Immigration Policy Dilemma
   - Large-scale deportation (target of 1 million/year) vs. legalization restrictions
4. Affordability Policies
   - Fiscal measures such as stimulus checks and housing subsidies
5. Defense Spending
   - Direction of military budget adjustments
6. Energy Policy
   - Power demand from AI data centers and traditional energy transition
7. Healthcare Regulation
   - Policy risks related to drug pricing and insurance coverage
8. Financial Regulation
   - Regulation of banking, stablecoins, and third-party vendors
9. Trade Policy
   - Tariff adjustments and global supply chain restructuring
10. Fiscal and Monetary Policy Coordination
    - Interaction between deficit spending and Federal Reserve policies

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According to the latest market data [0], the S&P 500 Index is currently trading at $683.17, with a 52-week range of $481.80-$691.66 and a P/E ratio of 27.55x. The market is at a relatively high level, meaning policy risks may be amplified.

• Vulnerability of the “Golden Age” Argument
  : TD Cowen notes that the government’s “Golden Age” argument partially relies on an unprecedented tax refund season (approximately $100 billion) thanks to new tax relief policies under OBBA [1]. If tax policies are not implemented as expected, the market may face disappointment.

• Uncertainty of the IEEPA Tariff Ruling
  : The Supreme Court is about to rule on tariffs under the International Emergency Economic Powers Act (IEEPA). TD Cowen emphasizes that corporate refund issues are one of the key elements [1]. This ruling may have a significant financial impact on multinational companies, especially those relying on global supply chains.

• Economic Impact of Immigration Policy
  : The government announced a target of deporting 1 million people annually, but there is also a competing approach of “legal restrictions” [1]. Large-scale changes in immigration policy may affect the labor market, especially industries relying on low-skilled labor (construction, agriculture, service sectors).

Based on the latest sector performance data [0], we can observe differences in the sensitivity of various sectors to policy risks:

Sector	Daily Performance	Policy Risk Exposure Level
Utilities	+2.10%	Low Benefit
Energy	+2.00%	High Benefit
Basic Materials	+0.68%	Moderate Benefit
Financials	+0.43%	High Uncertainty
Industrials	-0.04%	Moderate Benefit
Real Estate	-0.32%	Moderate Risk
Consumer Staples	-0.33%	Low Risk
Healthcare	-0.38%	High Risk
Technology	-1.02%	High Uncertainty
Communication Services	-1.67%	Moderate Risk
Consumer Discretionary	-1.91%	High Risk

• Energy Sector (+2.00%)
  : The huge power demand from AI data centers will benefit traditional energy and independent power producers. TD Cowen specifically mentioned that energy policy will focus on “AI power demand” [1]. As AI workloads surge, energy consumption by data centers is expected to grow significantly, which may bring structural opportunities for traditional energy companies and clean energy providers.

• Financial Sector (+0.43%)
  : Despite regulatory uncertainty, the interest rate environment and possible fiscal stimulus may boost bank stocks. Increased fiscal spending and changes in tax policies may lead to a steepening of the yield curve, which is beneficial to banks’ net interest margins.

• Defense/Industrial Sectors
  : Geopolitical tensions and expectations of increased defense spending may boost aerospace and defense contractor stocks.

• Healthcare (-0.38%)
  : Policy risks have re-emerged in the areas of medical coverage and insurance pricing [2]. Drug pricing reforms, ACA subsidy cliff risks, and price transparency compliance reviews may all put pressure on this sector. Large pharmaceutical companies face increased regulatory scrutiny and price pressures.

• Technology (-1.02%)
  : Uncertainties in AI regulation, antitrust reviews, and trade policies may curb valuation expansion. However, increased AI infrastructure spending may partially offset these risks.

• Consumer Discretionary (-1.91%)
  : If fiscal stimulus is less than expected or tariffs push up consumer costs, this sector may be impacted. Tightening immigration policies may also push up labor costs in the service industry.

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1. Energy and Power Infrastructure
   • Focus on independent power producers and traditional oil and gas companies
   • Investment Themes: AI data center energy demand, grid modernization
   • Risks: Clean energy policy shift

2. Defense and Aerospace
   • Benefit from geopolitical tensions and expectations of increased military spending
   • Focus on major defense contractors and supply chain enterprises
   • Risks: Political games over budget cuts

3. Financial Services Industry
   • Benefit from yield curve steepening and increased economic activity
   • Focus on large banks and asset management companies
   • Risks: Regulatory tightening, stablecoin policy changes

1. Healthcare Selection
   • Avoid drug pricing-sensitive areas
   • Focus on medical device and diversified medical service companies
   • Risks: Overall regulatory environment tightening

2. Consumer Staples and Utilities
   • Relatively policy-neutral safe havens
   • Focus on companies with stable dividends and strong cash flows
   • Risks: Inflationary pressures, rising interest rates

3. Cash and Short-Term Bonds
   • Maintain flexibility when policy uncertainty is high
   • Wait for policy direction to be clear before increasing risk exposure

• AI Infrastructure
  : Energy demand, data center REITs, semiconductor equipment
• Supply Chain Localization
  : U.S. manufacturers benefiting from tariff and reshoring policies
• Cybersecurity
  : Increased policy risks drive corporate IT security spending
• Infrastructure
  : Beneficiaries of possible fiscal stimulus bills

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1. Policy Milestones
   • IEEPA tariff ruling timeline (Supreme Court)
   • OBBA tax reform progress and congressional votes
   • Immigration executive orders and legislative initiatives
   • Fiscal spending bill negotiations

2. Market Signals
   • VIX Index Volatility
   • High-Yield Bond Spreads
   • U.S. Treasury Yield Curve
   • Sector Rotation Patterns

3. Economic Data
   • CPI/PCE Inflation (Tariff Impact)
   • Employment Reports (Immigration Policy Impact)
   • GDP Growth (Fiscal Multiplier Effect)

• VIX Futures/Options
  : Protect against volatility spikes caused by policy shocks
• USD Index Call Options
  : Hedge against trade policy risks
• Interest Rate Futures
  : Hedge against unexpected changes in monetary policy
• Sector Hedging
  : Use sector ETFs for pair trading

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TD Cowen’s 2026 policy risk warning depicts a

policy environment. The current U.S. stock market [0] is in a historically high range (S&P 500 near its 52-week high of 691.66), meaning policy surprises may trigger significant volatility.

1. Highest Risk in H1 2026
   : Key issues such as the IEEPA ruling, tax legislation, and immigration policy will converge in the first half of the year; investors are advised to remain cautious in Q1-Q2.

2. Policy Differentiation Creates Opportunities
   : Policy tailwind sectors such as energy, defense, and finance may outperform the market, while policy headwind sectors such as healthcare, technology, and consumer discretionary face valuation pressures.

3. Flexibility and Selectivity Are Crucial
   : In an environment where “the range of policy outcomes could be the widest ever” [1], flexible allocation and stock selection will be key sources of excess returns.

4. Long-Term Themes Unaffected by Short-Term Policies
   : Structural trends such as the AI revolution, energy transition, and supply chain localization will persist; investors should focus on long-term winners in these trends.

• Maintain moderate defense and increase cash allocation
• Monitor policy progress and adjust allocations timely
• Use volatility opportunities to build long-term positions
• Emphasize risk management and use hedging tools to protect portfolios

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[0] Jinling API Data - S&P 500 Real-Time Quotes, Sector Performance, Market Index Data

[1] Yahoo Finance - “TD Cowen flags 10 key policy risks for 2026” (https://finance.yahoo.com/news/td-cowen-flags-10-key-125523305.html)

[2] Investing.com/TD Cowen - Summary of 2026 Policy Risk Report (https://ca.finance.yahoo.com/news/td-cowen-flags-10-key-130208339.html)

[3] Reuters - “Trump shook up global trade this year; some uncertainty may persist in 2026” (https://www.reuters.com/world/china/trump-shook-up-global-trade-this-year-some-uncertainty-may-persist-in-2026-2025-12-22/)

[4] CNBC - “There are two risks the market isn’t pricing in heading into the new year” (https://www.cnbc.com/2025/12/26/there-are-two-risks-the-market-isnt-pricing-in-heading-into-the-new-year-according-to-apollos-torsten-slok.html)

[5] Bloomberg - “Here’s (Almost) Everything Wall Street Expects in 2026” (https://www.bloomberg.com/graphics/2026-investment-outlooks/)

[6] ts2.tech - “Financial Services Stocks Outlook: Banks, Payments, and Insurers Face 2026 Crosscurrents” (https://ts2.tech/en/financial-services-stocks-outlook-dec-20-2025-banks-payments-and-insurers-face-2026-crosscurrents-as-rates-shift-and-stablecoins-go-mainstream/)