Trump's Tax Cut Bill Passes House by One Vote
Senate Vote Remains... Will Bond Vigilantes Return?
U.S. Treasury Yield Surge Eases... Dollar Also Strengthens
The three major U.S. stock indexes closed mixed in a narrow range on May 22 (local time). After the U.S. House of Representatives passed a tax reform bill containing President Donald Trump's tax cut pledges, concerns over fiscal deficits weighed on investor sentiment, resulting in only a slight rise for the Nasdaq Index. Although the surge in U.S. Treasury yields, which had reached 'seizure' levels the previous day, subsided, the 10-year yield remained above 4.5% and the 30-year yield stayed above 5%. The dollar continued to strengthen.
On this day at the New York Stock Exchange, the blue-chip Dow Jones Industrial Average (Dow Index) closed at 41,859.09, down 1.35 points (less than 0.1%) from the previous trading day. The large-cap S&P 500 Index fell by 2.6 points (0.04%) to close at 5,842.01, while the tech-heavy Nasdaq Index rose by 53.09 points (0.28%) to finish at 18,925.74. All three major indexes attempted to shake off concerns about worsening fiscal deficits and showed gains at one point, but ultimately gave up those gains in late trading, with only the Nasdaq Index ending slightly higher.
On this day, the U.S. House of Representatives, led by the Republican Party, passed what President Trump has called the "big, beautiful, single bill." The bill, which includes large-scale tax cuts such as reductions in personal income and corporate taxes and tax exemptions for tips, as well as additional defense spending, passed narrowly with 215 votes in favor and 214 against, and now moves to the Senate. If the bill is finally approved in the Senate, it is expected to stimulate the economy in the short term through tax cuts, but it is also expected to worsen the U.S. fiscal deficit in the medium to long term. The Congressional Budget Office (CBO) projected that the bill would increase the federal government deficit by $3.8 trillion over the next ten years.
Jed Ellerbrook, portfolio manager at Argent Capital Management, stated, "In the short term, the tax bill containing tax cuts and defense spending will help the economy by boosting GDP growth in 2026," but he also pointed out, "However, in the long term, this measure will expand the fiscal deficit and will be bad news for the market."
Despite the downgrade of the U.S. sovereign credit rating by global rating agency Moody's, President Trump is pushing ahead with a tax cut plan that will expand the fiscal deficit, raising doubts in the market about U.S. Treasuries, the world's largest safe asset. The upward trend in U.S. Treasury yields, which accelerated due to the failure of a Treasury auction just before the passage of the tax bill the previous day, has subsided, but yields remain high. The benchmark 10-year U.S. Treasury yield, a global bond market indicator, fell by 5 basis points (1bp=0.01 percentage point) from the previous day to 4.54%, while the 30-year U.S. Treasury yield dropped by 3 basis points to 5.05%. There is an assessment that investors are withdrawing their strong confidence in the U.S. economy due to fears of fiscal deterioration.
On Wall Street, there are forecasts that if President Trump and the Republican Party's tax cut bill passes its second hurdle in the Senate, the Treasury market could become volatile again. There are also observations that the so-called "bond vigilantes"?who punish governments and central banks for problematic fiscal or monetary policy or signs of inflation by selling off government bonds?could become active again. In addition, if tariff-driven inflation becomes apparent, the high interest rate environment could be prolonged and push Treasury yields even higher.
Mark Haefele, Chief Investment Officer (CIO) at UBS Global Wealth Management, said, "Uncertainty surrounding trade policy and fiscal outlook has resurfaced, bringing market volatility back to the forefront," and predicted, "As bond yields rise and tariff and budget risks draw attention, such volatility could persist going forward."
The dollar remains strong. The dollar index, which measures the value of the U.S. dollar against the currencies of six major countries, is up 0.4% from the previous day at 99.83.
By stock, Tesla rose 1.92%. Alphabet, Google's parent company, was up 1.13%, and Nvidia rose 0.78%. Tesla showed a 1% increase. Apple fell 0.36%.
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