Declining Approval Signals Heightened Political Risk: Investor Implications for 2026

President Trump's overall approval rating now sits at 38% in December 2025, down three points from April's 42% according to NBC polling data. The erosion reflects growing public anxiety about persistent inflation and rising living costs, particularly among lower-income households struggling with housing and food expenses. While his core MAGA coalition remains largely loyal, support has slipped to 70% from 78% six months ago, signaling fractures within the Republican base.

Economic performance has become the administration's weakest spot, with approval for handling the economy dipping to 31%-its lowest level since entering office. This represents a sharp decline from earlier in the year, as voters increasingly question whether tariffs and trade policies have eased or exacerbated inflationary pressures. Even among Republicans, confidence in economic stewardship has waned from 78% to 69% since March, according to AP-NORC surveys.

The political fallout is most acute among younger voters who supported Trump in 2024, whose approval rating has fallen 23 points to 69%. Non-voters also show deepening disengagement, with approval dropping to just 32%. Partisan divides remain stark: 85% of Republicans approve of his leadership, while majorities of Democrats (83%) and non-white Americans (70-83% disapproval) maintain negative views.

These trends raise concerns for midterm elections two years from now, as economic dissatisfaction continues to erode support across demographic groups. While border security retains modest approval at 50%, criticism over deportation tactics and government shutdowns adds to the administration's challenges. The administration faces mounting pressure to address cost-of-living concerns without alienating its conservative base, creating a tight political tightrope ahead.

Political Division as a Gridlock Catalyst

The widening partisan approval gap signals deepening polarization that directly fuels gridlock risk. A clear divide persists: 85% of Republicans approve of the president against 83% of Democrats who disapprove. This extreme partisan segregation makes bipartisan compromise on major legislation exceptionally difficult, as each side views the president's agenda through a fundamentally hostile lens. The erosion of core character perceptions compounds this problem. Trust in his judgment is waning, with only 48% viewing him as "mentally sharp" and just 37% believing he "cares about ordinary people". This credibility deficit weakens the foundation for implementing policy effectively, regardless of partisan support.

Further complicating the picture, evidence points to growing factionalism within the Republican base itself, particularly over domestic versus foreign policy priorities. This internal division weakens unified legislative pushback against Democratic opposition. While the core MAGA base remains sizable, their influence is fracturing, making consistent policy direction harder to achieve. The combination of sharp partisan lines and intra-party splits creates a volatile environment where consensus-driven governance stalls, increasing the likelihood of legislative gridlock and policy uncertainty. Economic anxieties, amplified by persistent inflation and cost pressures, further erode public confidence and heighten the risks associated with this fragmented political landscape.

Investor Risk Scenarios and Market Implications

Political uncertainty in Washington continues to shape market dynamics, with a potential second Trump term presenting distinct risk scenarios for investors.

The Trump Risk Index flags elevated economic and political risks from protectionist trade policies, stricter immigration measures, and rebalanced defense strategies. These policies would disproportionately impact the US's 70 largest trading partners, with manufacturing and technology facing heightened regulatory scrutiny. Defense and energy sectors may also experience shifting government exposure and spending priorities.

Recent polling shows Trump's approval ratings have fallen on key issues: the economy at 31% and immigration at 38%. This political pressure could incentivize further protectionist measures as the administration seeks to address voter concerns, though the link between approval trends and policy outcomes remains uncertain. Republican support for his economic policies has also declined from 78% in March to 69% in December, partly due to tariff-induced inflation worries.

Investors should monitor trade policy shifts and sector vulnerabilities while acknowledging that political headwinds may not directly translate into concrete actions. The interplay between domestic approval metrics and international market impacts warrants cautious vigilance amid evolving political dynamics.

Guardrails, Catalysts, and Monitoring Signals

Trump's political capital remains under pressure as key metrics approach critical thresholds. His overall approval sits at 36% according to AP news, with economic approval hitting a low of 31%-well below the 35% guardrail for Q1 2026. While his "mentally sharp" perception (48%) currently exceeds the 45% threshold, the 23-point drop among younger 2024 voters raises concerns about long-term credibility. These metrics form the first line of defense for investors: if economic approval falls below 35% by early next year, it could trigger legislative gridlock, given the January 2026 midterms' stakes according to NBC polling data.

Macro-economic data released in December 2025 further complicates the outlook. Persistent inflation and housing costs have eroded trust in GOP economic management, with Democrats leading 53% to 47% on inflation readiness. If this trend persists, it may pressure Republicans to abandon ambitious policy agendas-potentially delaying tax reforms or infrastructure plans cited as growth catalysts. Meanwhile, Trump's declining approval among non-voters (down to 32%) and younger cohorts risks turnout dynamics in midterms, where even minor shifts could swing control of Congress.

For now, the administration retains a 69% approval among Republicans on economic policies, but this base is fraying. Gridlock may temporarily shield investors from abrupt policy swings, yet prolonged inaction could dampen market optimism. Investors should monitor three signals closely: (1) the trajectory of economic approval ahead of the 2026 midterms; (2) any deterioration in perceptions of Trump's mental acuity, which could undermine policymaking credibility; and (3) macro data releases from early 2026 that may validate or reverse current economic anxiety. The window for decisive action narrows with each point lost in approval.