Despite pre-emptive anxieties about a "de-dollarization" and a "triple kill" of stocks, bonds, and currency, US markets have defied expectations. The recent passage of the "One Big Beautiful Bill Act" (OBBBA) has seemingly not triggered the predicted market turmoil. This article analyzes the unexpected resilience of US equities and bonds, juxtaposing market performance against the prevailing anxieties and offering insights based on prior analyses.
The "One Big Beautiful Bill Act" (OBBBA), a significant piece of US legislation, has navigated a complex path through Congress, finally gaining approval by a narrow margin. While the debate surrounding this act, and the implications for the global economy, continues, the initial market response has been surprisingly robust. For the past three months, the US stock market, defying predictions of a "de-dollarization" and a potential "triple kill" of equities, bonds, and currency, has outperformed global markets, reaching new highs. The Nasdaq, for instance, has rebounded by 35% from its recent lows. Intriguingly, US treasury bond yields have not risen further, and while the US dollar has remained weak, the anticipated dramatic decline has not materialized. A notable feature is the return of capital inflows to US equities and bonds, following a brief period of outflow.
This resilience in the face of considerable apprehension is consistent with previous analyses by our team. As early as April 8th, our reports highlighted the attractive valuation of the Nasdaq index, with P/E ratios reaching the 20x mark. We advocated against shorting the market at that point, anticipating a potential recovery. Furthermore, during the peak of "triple kill" anxieties, we emphasized that these fears were largely driven by short-term liquidity concerns and long-term anxieties based on extrapolated projections. These earlier predictions, outlined in our reports "‘Reciprocal Tariffs’ Impact: How Severe Will It Be?" and "What Happened During the Last ‘Triple Kill’?", offer valuable contextual understanding of the current market dynamics.
The current data paint a picture of a market that is more resilient than initially projected. The passage of the OBBBA, while significant, appears not to have triggered the anticipated negative consequences. The outperformance of US equities, combined with the stabilization of bond yields and the subdued dollar movement, suggests a more nuanced and potentially more optimistic outlook. However, the long-term implications of the OBBBA, and the broader economic context in which it is enacted, remain to be fully explored. Continued monitoring and analysis will be crucial to understanding the evolving dynamics of the US financial landscape. Further research into the specific provisions of the OBBBA and their potential impact on global markets is warranted. The subsequent performance of the US markets will provide crucial data points in evaluating the strength of these earlier predictions.
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