Some investors might be worried about the stock market, given President Donald Trump’s policy gyrations and the way he communicates his plans. Don’t be.
The market has shrugged off the noise: The S&P 500 rose to 6000 this week, up 20% from its 2025 low hit in early April—and not far from the index’s February record close of 6144. The U.S. economy is resilient, supporting the recent rally.
A Fast Climb, but Still Momentum Ahead
True, the index may have come too far too fast in the short-term: The S&P more than erased all of its losses from early April when Trump announced sweeping tariffs on U.S. trading partners. Still, the S&P 500 has plenty of wind at its back to push it higher over the coming few years.
Tariffs Are a Real Risk—But Not a Dealbreaker
For now, tariffs are a concern. They’ve already caused companies to see higher costs and lift prices. While the White House has rolled back a chunk of the initial tariffs announced in April, the baseline 10% tax on imports is in place, providing impetus for some inflation.
Walmart and other companies have said they could raise prices further soon. Inflation could come in a little too high later this year—keeping interest rates elevated and reducing consumer demand.
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Trump vs. Musk? Interesting, But Not Market-Moving
Wall Street also took note of this week’s public spat between Trump and Tesla CEO Elon Musk, who traded barbs with each other online. Though their feud could present problems for Tesla, it’s less important for the broader market.
Big Spending, Bigger Deficit
The more pressing concern: The government spending that would result from Trump’s “One Big Beautiful Bill,” which Congress has yet to pass.
According to the Committee for a Responsible Federal Budget, the bill would add $3 trillion to the federal deficit through 2034 and would increase the annual deficit by 17% from last year’s $1.8 trillion. The deficit would also rise as a percentage of economic output to 7%.
The government would need to finance this deficit by borrowing more money—which would push Treasury yields up and raise the cost of borrowing for people and businesses.
Markets Are Looking Past the Short-Term
Still, the stock market may be right in taking all of these policy developments in stride.
Morgan Stanley economists and policy analysts wrote in a note Friday that if the bill passes this year, the fiscal spending would boost total U.S. gross domestic product by 0.2% in 2026. They emphasized markets will focus less on the short-term mathematical impact and more on the aftereffects of any resulting increase in rates.
Bond Yields Steady, Inflation Expectations Contained
That could be good news: Rates are unlikely to skyrocket, and government spending may not send inflation drastically higher.
The yield on the 10-year Treasury note is currently around 4.5%, roughly where buyers have repeatedly rushed in this year to buy bonds, sending their prices higher and yields lower. The few spikes above 4.5% have been mild and short-lived.
This yield is attractive to investors because expectations for average annual inflation for the coming decade, given the pricing in the Treasury Inflation-Protected Securities market, have risen to only 2.3%. That’s up only a tiny bit from a 2025 low of 2.2%, according to the St. Louis Fed.
This also means Treasury bond investors can earn a return that easily beats inflation—encouraging more bond-buying and stable yields.
