OBBBA Leaves Stocks Largely on the Same Trajectory 

By Chris Lafayette

MY TEN-YEAR-OLD SON loves sports, and in the off-season, while there are no games, he keeps me abreast of ALL the transactions that hit the newswire. An All-Star finding a new home, or an up-and-coming player moving to greener pastures, certainly mixes things up. But usually, most of the impact players stay put, and that means more of what we saw the previous season.

There is no off-season in the stock market, but there are perhaps even more variables that impact the market than there are moves that impact a professional sports season. Similarly, the news media doesn’t always do a good job discerning which moves will have the greatest effect, and the status quo doesn’t always garner much attention. So, when July brought about the passage of the so-called One Big Beautiful Bill Act, it had the feeling of an MVP signing a contract to stay with the same team, not terribly exciting but certainly consequential.

Be clear that when I say MVP (most valuable player), I’m referring strictly to the OBBBA’s impact on the stock market, and not the policy initiatives it aims to support. OBBBA extended favorable tax rates enacted by the 2017 Tax Cuts and Jobs Act, which cut top corporate tax rates from 35% to 21% and decreased nearly every individual bracket by several percentage points. These stimulative measures were set to expire at the end of 2025 for individuals and 2028 for corporations. The OBBBA has extended their life to an undetermined time in the future (cue the sound of a can rattling down the road).

Lower individual and corporate tax rates mean more money can be devoted to consumption, the biggest driver of GDP. Already, we’ve seen surprises as second quarter corporate earnings grew by double digits year-over-year, and those corporations also gave a rosy outlook for the third quarter. The strength comes as a shock to many because the fallout from tariffs seemed sure to disrupt a strong economy.

Tariffs are today higher on average than they were in 1930 when the U.S. passed the Smoot- Hawley Act, significantly increasing tariffs, and prompting another leg down in the Great Depression. Why then haven’t the current tariffs impacted our economy to a greater extent? Perhaps, a more global supply chain today is counteracted by an economy that has shifted away from physical goods. Many of our largest corporations now trade in digital goods and services. Companies which make software or monetize advertising make up a large percentage of the stock market and are little impacted by the tariffs themselves. 

In the near term, the stimulative effect of the OBBBA has been evident, but it is not without its repercussions. The law makes it highly likely that the budget deficit of 2024 will persist. At 6.4% of GDP, this deficit was the largest in our nation’s history outside of periods of war or recession. Other effects aside, it would take a doubling of our GDP to bring the deficit down to a sustainable level, something even the law’s most ardent supporters haven’t suggested. 

In this era of massive budget deficits, the OBBBA has affected more than just U.S. stocks. The U.S. dollar has weakened, amplifying the return of foreign stocks and bonds, and leading to their first outperformance in some time. Additionally, inflation hedges like gold and Bitcoin have rallied dramatically in the first part of 2025. The OBBBA seems to validate a concern about responsible fiscal policy.

There will be numerous events that move markets in the year ahead, some attention grabbing, others less so. Like a sports season which experiences injuries and trades, highs and lows for every team, stocks will surely have twists and turns. However, with the passage of the OBBBA it looks like the Bulls have quietly resigned Michael Jordan, Scottie, and the Worm. But as any sports fan will tell you, nothing is guaranteed, and for me at least, that is why I’ll be watching.