Trump’s Big Beautiful Bill could spell volatility
Moody’s downgraded U.S. sovereign debt from Aaa to Aa1 after markets closed last Friday, adding to fiscal anxieties. It cited unsustainable deficits and a lack of political will to address them. This downgrade, the last among the three largest rating agencies, is not a big deal on its own but it added to pressure from President Trump’s "One Big Beautiful Bill" that exacerbated these concerns. The legislation, which includes extensive tax cuts and increased spending, is projected to add trillions to the national deficit over the next decade. This has already impacted the bond market, with 10-year Treasury yields surpassing 4.5% and 30-year yields exceeding 5%, levels not seen since 2007. The combination of increased borrowing and diminished investor confidence suggests that the U.S. may face higher financing costs and heightened market volatility in the near future.
Target’s earnings report gave us the latest insight into consumer behavior. Blaming tariffs and a deteriorating consumer mood, the company delivered disappointing results. This suggested that, while consumers are still spending, they’re doing so cautiously. The overall tepid sales highlighted the lingering effects of economic uncertainty on consumer confidence. While we definitely continue to be confident in the stock market’s performance this year, it’s likely that second-quarter earnings reports will feature similar commentaries and be more challenging than in the first quarter, for most companies.
The European Central Bank’s (ECB) recent Financial Stability Review signalled a potential “fundamental regime shift” in global financial markets. Investors are increasingly questioning the long-standing dominance of U.S. assets, particularly Treasuries and the dollar. Factors, such as escalating trade tensions, rising national debt and political dysfunction in Washington are contributing to this reassessment. The ECB warned about the need for the U.S. to address its fiscal challenges to maintain its position as a global financial anchor. We don’t know if the ECB is in the best position to point fingers, but its advice to diversify globally remains sound.
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