The American stock gathering faces some harsh tests

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Rola Khaleda, FT editor, chooses her favorite stories in this weekly newsletter.

The amazing bounce in American stocks has been disrupted since the tariff of chaos in April. Now, the Donald Trump budget bill is “large and beautiful” is the event that it can make or break.

It seems that retail investors in the United States were among the first to buy American stocks immediately after the shock of “Liberation Day”, and they did not look back. The rewards heading to their path were large, with a 22 percent jump from the lowest point in April in the main US Index, S&P 500.

This index remains only positive in the year, as it fails to a large part of the rest of the world, and the momentum has run out during the past two weeks. But still, my mother and bob investors, and other DIP buyers early, we praise you. This was a very great trade.

If you are mutating, or wearing orthopedic glasses, or both, you can build a decent argument why this recovery should be revived. US President Donald Trump tells a winding road and often concerns his economic and geopolitical stances, especially in trade, but it seems that disasters have been avoided.

He temporarily stopped the most aggressive world trade tariffs, which has since faced legal tangle. He explained a deal with China. He retracted the pursuit of fire on the head of the Federal Reserve, Jay Powell, and from the proposed tariff by the European Union, and it seems that he seemed to forget other ideas as Zany ideas like taxes on foreign films.

So, whether you have bought DIP because you are always buying DIP and it was not really sure of the reason except that he has always been working in the past, or because you chose the point wisely in April where Trump stare at the abyss and retreat, it is not related. On the market, it is generally better to be good than lucky but a little or both have a long way.

On the one hand, Morgan Stanley believes that this can extend further, albeit with some bumps on the road. that it Pencilt in 6500 S&P 500 in the middle of next year – ascended 10 percent in terms of we are today – and we provide advice to customers to abide by the United States over the rest of the world.

A lot of strange things happened. Who says this is a mistake? But my wide inquiries have not yet resulted in a deep seat for other market professionals who share this enthusiasm. Don’t shoot the Apostle – many other people have already done this in my in the in input in the past few weeks – but many still do not see how all this will do well.

The main reason for doubt is that the avoidance disaster does not mean that the tranquility is on the horizon. As a result, for many people, the size of the recovery that was seen so far in the American market – not only the stocks but the categories of assets fraught with other risks as well – simply meaningless.

Viktor Hjort, a strategic expert at BNP Paribas, is among those who warn that Boundback was a “very very technical stage”, which stems from what was, in April, one of the most severe market pressure in the past market. He said: “This was a market that was almost (negative) as in mid -2022, early 23, in a state of panic, when everyone thought that the United States would slip into recession.” This means that it was only good news, or at least not bad news, to prove a big leap.

Now, as he says, the expectations for the US corporate debt markets are unambiguously negative, as many companies face the need to borrow more than investors as it seems that the costs of borrowing are likely to remain high and that companies are struggling with chaotic import taxes that impede their planning.

Good news for optimistic stocks is that Big Tech – The Crown Jewel of the Market – is still pumping Star revenuesThe Nafidia’s profit report showed this week.

But the horizon on the horizon is what Trump calls the draft law of his “great and beautiful” budget, and it makes its way through the American legislative process now. This contains two main banana skins for investors.

One is “Section 899” – a ruling that provokes additional taxes on foreign investment in the United States. This has ranked largely under the radar, but the investors are now, as we mentioned this week, panic. Given the poor performance in the United States for other markets of the world this year, and its urgent need to attract foreign money, it is difficult to imagine that this will witness daylight. It is concerned.

The other is the huge height of borrowing, and in the deficit, which is drawn by the “beautiful” bill. Bond markets already Get nasalWhich means that all this additional borrowing, beautiful or otherwise, will come at a huge cost.

The stock markets do not tend to perform well when standard bond returns extend to the top – especially sectors such as technology, which investors often buy for their capabilities instead of their reality. “Every institutional investor gets that.” Mark Daving says at RBC Bluebay Asset Management. “But try to explain this to retail investors. They are not interested in all of this. All they care about is” buying a decrease, buying decline, and buying decline. “

Summit? maybe. But the recovery that has been activated during the past six weeks or so is about to face some harsh tests.

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