Trump's One Big Beautiful Bill clears Congress hurdle: How will it impact US stock market and economy? Explained

Mint

2 days ago

One Big Beautiful Bill: US President Donald Trump's mega-bill of spending and tax cuts finally cleared the Congress hurdle and is set to become a law after the House of Representatives passed it in a final vote on Thursday.
Trump is all set to sign the bill into law during a ceremony on Friday (July 4), which coincides with the US Independence Day. The bill encompasses from extension of tax cuts, increased defence spending, cuts in medical aid and reduced spending on green energy initiatives.
According to a PTI report, Donald Trump's proposed mega bill focuses mainly on extending and expanding tax cuts from his first term. These tax breaks, worth $4.5 trillion, are set to expire unless Congress acts. New additions include tax deductions for workers on tips and overtime and a $6,000 tax break for most older adults earning under $75,000 a year.
The bill also plans to spend around $350 billion on national security, immigration enforcement, and building a 'Golden Dome' defence system to protect the US.
To make up for the lost tax income, the plan includes $1.2 trillion in cuts to programs like Medicaid (healthcare for low-income people) and food stamps. These cuts would come through new work requirements, even for some parents and older adults, and by reducing green energy tax incentives.
The Congressional Budget Office estimates that this package would increase the US deficit by $3.3 trillion over 10 years, and about 11.8 million people could lose their health coverage.
Trump's massive $4.5 trillion tax and spending package presents a classic case of short-term economic steroids versus long-term fiscal hangover, said Viram Shah, Founder & CEO, Vested Finance.
"While the bill's immediate economic impact will likely be stimulative—with corporate tax cuts and consumer spending boosts driving GDP growth—the underlying fundamentals are deeply concerning. The legislation pushes the national debt toward an unsustainable 120% of GDP by 2026, effectively mortgaging America's future for present-day political gains," Shah added.
US economy earlier in May saw Moody's Investors Service downgrade its sovereign credit rating amid rising concerns over the nation's growing $36 trillion debt burden. The credit rating agency lowered the US government's long-standing rating by one notch to 'Aa1' from 'Aaa' and revised its outlook to 'stable' from 'negative.'
It had then warned that the fiscal proposals currently under discussion are unlikely to deliver a sustained, multi-year reduction in deficits. The agency projects that the federal debt burden will rise to approximately 134% of GDP by 2035, up from an estimated 98% in 2024.
Any increase in the deficits from the latest mega bill that Trump endorsed could add trillions of dollars to the debt, further impacting the US's credit ratings, and requiring increased interest rates eventually. This would be quite risky for the US economy, pushing it towards a debt trap, opined Vikas Gupta, CEO & Chief Investment Strategist at OmniScience Capital.
Shah believes that the US market may initially celebrate the corporate earnings boost, but investors should brace for the inevitable reckoning when bond vigilantes start demanding higher yields to compensate for America's deteriorating fiscal position. "The bill's timing is particularly reckless given current inflationary pressures and strong labour markets," he added.
The US stock market has been hitting back to record highs, with corporate earnings and the US economy holding up better than many had expected through a period of dramatic policy changes.
However, Gupta believes that the impact of the bill can go both ways. "There could be increased budget deficits which would entail increased borrowing by the government. This is triggered by significant tax cuts which could reduce the revenues to the government. However, the argument on the other side is that the catalysed business growth would make up for the decreased taxes on corporations and businesses. So that remains to be seen," he added.
Commenting on the sectoral impact of the mega-bill Shah said sectoral winners and losers are starkly divided along ideological lines.
"Manufacturing and industrial stocks will benefit from immediate equipment expensing provisions, while energy companies should see gains from reduced regulatory burdens. However, the bill's assault on clean energy represents a strategic blunder that will hand technological leadership to China. Healthcare and social service providers serving low-income populations face headwinds from Medicaid cuts affecting 7.8 million Americans. The most perverse outcome is that luxury goods and high-end services will likely outperform as wealthy beneficiaries of SALT deduction increases spend their windfalls, while companies serving working-class Americans struggle with reduced government support," he said.
Additionally, Vikas Gupta of Omniscience believes that the global Oil & Gas sector will be significantly impacted. The bill could encourage large amounts of new US production of oil and impact the global oil markets.
He added that the US manufacturing sector benefits from the new tax policies and encourages investments and R&D. However, developing domestic manufacturing and moving it onshore from offshore locations would be quite challenging given the high costs of US domestic production, Gupta said. "The end result remains to be seen. However, semiconductor manufacturing and critical minerals would likely see growth," according to the expert.
Defence is a huge beneficiary with more than a trillion-dollar budget, and this would trigger lots of defence spending in advanced technologies, from ship building to advanced weapons to drones etc, he said.
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