The Trump administration has implemented significant tariff increases, with the "average effective tariff rate... more than 15%." This is the "highest tariff rate since the late 1930s Great Depression era." These tariffs are "contributed to stagflation, a deceleration in economic growth, and an expected acceleration in inflation."

Labor Market Dynamics

Consumer and Business Confidence Declines

Fiscal Pressures and Debt Concerns. Mounting Deficit and Debt: Treasury Secretary Scott Bessent aims to reduce annual deficits to 3% of GDP, but the House reconciliation bill (the "One Big Beautiful Bill Act") is estimated by the Committee for a Responsible Federal Budget (CRFB) to "boost deficits to about 7% of GDP" through 2034.

CBO Reliability and Political Attacks: There have been concerted efforts by some Republicans to discredit the CBO, claiming it cannot be trusted or is biased.

The first half of 2025 has been "choppy for stocks," with the S&P 500 experiencing a 21.4% drop into bear market territory from mid-February to early-April, followed by a "jarring" rebound.

The market is likely exiting the "Great Moderation" era (positive correlation between bond yields and stock prices) and entering a "Temperamental Era" (more volatile inflation, negative correlation).

A recent "extreme pessimism" reading from the Ned Davis Research Crowd Sentiment Poll (CSP) in early April set up a "near-perfect background conditions for the market to reverse course in the face of a positive catalyst."

Legislative Challenges: The "Megabill" (One Big Beautiful Bill Act) Internal Republican Pushback: Key Policy Conflicts and Sticking Points:

Republicans hope to meet a self-imposed July Fourth deadline for clearing the bill for President Trump’s signature.