How could Trump's 'Big Beautiful Bill' affect the stock market?

We got some potentially momentous news from the United States overnight. President Donald Trump's 'One Big Beautiful Bill Act' (its actual name) passed the US Senate.

The budget bill passed by the narrowest of margins, with Vice President JD Vance using his casting vote to break a 50-50 tie.

The Big Beautiful Bill now heads back to the US House of Representatives for final passage. The House has already passed a version of the bill, so it looks as though it is headed for Donald Trump's desk for the final signature that will sign it into law.

This budget bill is one of the most controversial in American history. In a nutshell, it vastly increases the already-bulging US national debt by as much as US$3.3 trillion. It does so by funding massive tax cut extensions, abolishing taxes on tips and overtime, and increasing spending on defence and border security. The Big Beautiful Bill aims to assuage some of this deficit spending with large cuts to US healthcare programs. The largest cuts will affect Medicaid, the program that insures the poorest Americans.

The Big Beautiful Bill has divided the American public. The Democrats (Trump's opposition party) are universally against it, whilst many Republicans have also come out in opposition. The most prominent of these is Trump's former confidante, Elon Musk, who memorably described the bill as a "disgusting abomination".

So if Trump's budget bill does pass into law, how could it affect the stock market?

Well, that's the trillion-dollar question.

How will the Big Beautiful Bill affect the stock market?

One might be tempted to think 'not much' after the reaction on markets overnight. The US markets were relatively calm following the Big Beautiful Bill's Senate passage last night. The flagship S&P 500 Index (SP: .INX) fell last night, but only by 0.11%. The tech-centric Nasdaq Composite Index (NASDAQ: .IXIC) did drop by a more severe 0.82%, but the Dow Jones Industrial Average Index (DJX: .DJI) rose by a confident 0.91%.

So it's difficult to draw the conclusion that the markets are bothered by the prospect of the bill at this stage. Keep in mind that the S&P 500 has risen by a healthy 4.4% over the past month alone. That's including last night's slight fall.

However, as investors, and perhaps Taylor Swift might ask, are we out of the woods yet?

I would argue maybe not.

Look to the bonds

The markets have shown a degree of sensitivity to the US budget. Trump only walked back from his sweeping tariff plans in April after a sharp reaction from the stock market and bond markets. The US dollar, which began a worrying decline following the 'Liberation Day' tariff announcements, has only continued to drop in recent months. We can see this at home, with the Aussie dollar now at its highest valuation against the Greenback since November 2024.

Back in September last year, a US 10-year Treasury bond, which reflects broader market confidence in the United States economy, was yielding 3.6%. Today, it is trading on a yield of 4.25%.

If the Big Beautiful Bill Act passes, look to these metrics. If the bond yield on a 10-year Treasury rises significantly from here, it could mean bad news for the stock market.

Saying all of this, the budget bill is not the tariff plan. There's no going back once it passes. It could be one of those 'slowly, then all at once' moments. The Trump Administration, and the Republican Party more broadly, is making its bed. Once it's made, we'll all have to lie in it, for better or for worse.

The post How could Trump's 'Big Beautiful Bill' affect the stock market? appeared first on The Motley Fool Australia.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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