New York, July 1 EST: Wall Street didn’t flinch Tuesday when the Senate narrowly passed Donald Trump’s $4.5 trillion tax-and-spending bill—but under the surface, the mood is shifting. Stocks largely held their ground. Bonds didn’t.
The vote, decided by Vice President J.D. Vance, was expected. What wasn’t: how fast the bond market started to price in higher deficits.
The SPDR S&P 500 ETF (SPY) closed at $618.11, barely changed. The Dow rose modestly, helped by defense and energy names tied to the bill’s new spending lines. But the Nasdaq slipped, with Tesla down 4–5%, as investors digested fallout from Elon Musk’s standoff with Trump over EV subsidies.
Solar stocks, on the other hand, surged. Sunrun gained 13%, SolarEdge nearly 10%, after lawmakers quietly stripped excise taxes from renewables late in the negotiations. Call it the bill’s green consolation prize.
The Real Reaction Is in Bonds
While equity desks played it cool, Treasury traders didn’t. Yields rose across the curve—led by long-dated bonds—as the market recalibrated for a $3.3 trillion increase in the deficit over the next decade, per CBO estimates.
This wasn’t a panic. But it was clear-eyed. A Moody’s downgrade watch, soft demand at recent auctions, and growing concern about fiscal indiscipline are finally making their way into pricing.
As one State Street strategist told Reuters, “The market’s tolerating bad math—until it isn’t.”
Dollar Slips as Debt Signals Multiply
The dollar fell against the euro and yen, continuing a quiet but steady slide. The move reflects more than just currency flows—it’s a reaction to a long-term risk profile that now looks worse than it did 48 hours ago.
With the Federal Reserve now threading the needle between loose fiscal policy and still-sticky inflation, traders are starting to question how much room Chair Powell has left.
Investors Know the Drill—But They’re Watching
Most on the Street had priced in the Senate passage days ago. But that doesn’t mean they’re not watching the House. The vote there—scheduled for Wednesday—could still unravel, especially if moderates balk at the Medicaid cuts or hardliners demand deeper slashes.
And then there’s the Fed. Powell’s remarks this week could tip sentiment either way. A hint of concern about deficits could rattle longer-dated Treasuries. A shrug could push yields even higher.
Treasury auctions will also be a key tell. Weak demand will confirm what many already suspect: the bond market’s patience has limits.
For now, the equity market isn’t blinking. But in the world of rates and FX, the message is clear: this bill may be good politics—but it’s raising real questions about the U.S. balance sheet.
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A Wall Street veteran turned investigative journalist, Marcus brings over two decades of financial insight into boardrooms, IPOs, corporate chess games, and economic undercurrents. Known for asking uncomfortable questions in comfortable suits.
