The Performance of U.S. Stocks in the Coming Weeks Will Highly Depend on Three Core Variables: Adjustments to Tariff Policies, Progress on the Tax Reduction Act, and the Fed's Rate Cut Timing. Any Unexpected Changes from Any Party Could Serve as Catalysts for Market Breakthroughs or Crashes.
Understanding the Impact of Three Core Variables on the Market in One Chart
U.S. Stocks Are in a 'Policy Sensitivity Period'; Any Unexpected Changes in the Three Major Variables Could Serve as Catalysts for a Decline. The Most Optimistic Scenario Requires Coordination of All Three (Tariff Easing + Tax Cuts Implemented + Rate Cuts Initiated); Any Deterioration in Any Link (e.g., Judiciary Maintaining Tariffs, PCE Inflation Rebounding) Could Trigger Market Adjustments.
1. Tariff Policy: Judicial Game and Negotiation Progress
1. Current Status and Risk Points
Judicial Tug-of-War: On May 28, 2025, the U.S. International Trade Court Ruled that Trump's 'Reciprocal Tariff' Policy Exceeded Authority and Was Invalid, Government Appeal Granted a Stay of Execution Until Early June, Continuing Policy Uncertainty.
U.S.-Europe Negotiation Delayed: The Originally Planned 50% Tariff Increase on the EU Set for June 1 has Been Postponed to July 9.
2. Market Impact Pathways
Optimistic Scenario: Agreement Reached Between U.S. and Europe and Judicial Overturn of Tariffs, U.S. Stocks May Quickly Rebound
Pessimistic Scenario: Continued Tariffs or Introduction of Alternative Measures, Rising Inflation Expectations → Suppressing the Fed's Rate Cut Space → Pressure on Technology Stock Valuations (NASDAQ Most Sensitive).
2. Tax Reduction Act (Beautiful Big Bill): A Double-Edged Sword for Fiscal Stimulus
1. Core Content of Policy
Trump's Proposed (Beautiful Big Bill) Plans to Cut Taxes by $3.8 Trillion Over the Next Ten Years, Reduce Spending by $1.3 Trillion, but Will Expand the Fiscal Deficit by $2.5 Trillion. Key Points Include:
Corporate Tax Incentives: Extension of the 2017 (Tax Cuts and Jobs Act) Provisions, Actual Corporate Tax Rates Expected to Further Decrease.
Industry Differentiation: Traditional Energy, High-Tax State Consumption, and Domestic Manufacturing Benefit, While Clean Energy and Healthcare Face Pressure.
2. Market Contradictions
Short-Term Benefits vs. Long-Term Deficit Risks
Positive Effects: Enhanced Corporate Earnings (Technology, Consumer Sectors), Buyback Waves Boost EPS
Negative Effects: Surge in Government Bond Issuance → Rising U.S. Treasury Yields → High-Valuation Growth Stocks Under Pressure (e.g., NASDAQ Components).
Time Window: The Bill Aims to Pass Before July 4; If Progress is Delayed or Provisions Are Shrunk, Market Optimism May Reverse.
3. Interest Rate Cut Expectations: Inflation and Policy Game
1. Discrepancies in the Federal Reserve and Market Bets
Diverging Interest Rate Cut Expectations: Hawks: Tariffs Raise Inflation (Michigan's 1-Year Inflation Expectations Reach 7.3%), Federal Reserve May Delay Rate Cuts (Morgan Stanley Predicts Earliest in March 2026).
Doves: Signs of Economic Slowdown (e.g., ISM Services PMI Approaching the Breakeven Line) May Force the Federal Reserve to Cut Rates This Year (Barclays Predicts Cuts of 25 Basis Points in July and September).
Key Data Observations: June PCE Inflation (April Data Released on May 30; If Core PCE Month-on-Month is Below 0.2%, Expectations for Rate Cuts Will Heat Up), Employment Data (Rising Unemployment Rate May Trigger Rate Cuts)
2. Chain Reaction of Policy Shifts
Rate Cut Realized: Improved Liquidity → Benefiting Technology Stocks (AI, Chips) and High-Growth Sectors.
Rate Cut Missed: U.S. Treasury Yields Break Above 4.5% → Overall Pressure on U.S. Stock Valuations.