Trump’s Tax and Spending Bill to Hit Stocks, Bonds

Just as Congress is trying to push through its latest tax plan, Moody’s has downgraded U.S. debt.

Tax cuts are lowering revenue while spending continues to climb.

Combined with comments yesterday from Treasury Secretary Scott Bessent, who reminded the public that tariffs could rise again, that’s a one-two punch that could spook investors this week, Brian Swint reported for Barron’s Daily.

In some ways, the downgrade is symbolic. Moody’s is the last of the three main ratings agencies to issue one.

The reasons are predictable—tax cuts are lowering revenue while spending continues to climb.

Despite all the rhetoric about fiscal responsibility, the latest proposal cuts taxes far more than it reduces spending—and those spending cuts may not hold, especially with popular programs like Medicaid on the chopping block.

Some argue deficits don’t matter. They’re right, with one major caveat: deficits only don’t matter as long as bond yields stay low. So far, they have. The 10-year Treasury yield remains around 4.5%, roughly where it was a year ago.

But if fiscal concerns push yields significantly higher, brace for impact. Higher yields depress stock valuations, increase borrowing costs for companies, and ultimately slow economic growth.

Friday’s consumer sentiment data already shows shoppers are nervous. A warning from Walmart that prices may rise due to new tariffs hasn’t helped either. Earnings from Home Depot, Lowe’s, and Target this week will offer more insight.

For now, deficit concerns may be little more than political noise. But if bond yields start rising sharply, that noise could become a storm.