In early July, Congress handed the One Massive Lovely Invoice Act (OBBBA), and whereas its full affect gained’t be felt for a while, two key points of it appear at odds.
The primary is that it completely extends sure provisions of the 2017 Tax Cuts and Jobs Act, together with decrease particular person tax charges and better customary deductions. The same company and particular person revenue boosting nature of the OBBBA has possible performed some half within the rally in shares since April.
But as a lot as markets eat any such laws up, it comes with a powerful threat of heartburn. That’s as a result of the second main takeaway from the invoice is that it’s forecasted so as to add round $4 trillion to the nationwide debt over the following 10 years.
The chart beneath reveals the nationwide debt as a share of U.S. GDP, and the dashed orange line reveals the estimated trajectory after the passage of the OBBBA. It’s projected to develop to ranges in contrast to something we’ve seen earlier than, together with World Conflict II.
So what does all this imply for markets?
Burgeoning debt means a bigger provide of Treasury bonds that the Federal authorities makes use of to borrow. This may increasingly in flip trigger rates of interest to rise in the long run as bond traders with creeping doubts about our nation’s fiscal state of affairs demand a cheaper price and the next yield for its debt. There are additionally estimates that the invoice could also be a drag on financial development as larger deficits and authorities borrowing begin to crowd out non-public funding.
We might not totally know the outcomes of tariffs and the OBBBA for a while, however one place we’re seeing coverage adjustments already is in demand for the U.S. greenback. Since January, we have seen a major weakening within the greenback relative to different main currencies because the commerce battle and financial outlook have shaken confidence in U.S. markets.
The greenback is down nearly 10% during the last six months, the biggest decline in such a span in over 30 years. A weaker greenback has the impact of creating imports within the U.S. costlier for shoppers, however it additionally makes worldwide investments price extra, because the values of corporations abroad have gone up in greenback phrases simply by advantage of their native currencies strengthening relative to the greenback.
This forex dynamic has contributed to the robust returns of our globally-diversified portfolios in 2025. The primary half of the 12 months gives a case examine in the advantages of being globally-diversified, which smooths out volatility as numerous elements of the world take turns outperforming one another. It could not make the information headlines any much less scary, however it may profit your investing’s backside line.
