Now that President Trump’s One Big Beautiful Bill Act has been signed into law, investors are turning their attention to the impact that the massive tax and spending legislation could have on the U.S. economy and financial markets.

Among many other provisions, the law permanently extends large tax cuts initially adopted as part of the Tax Cuts and Jobs Act of 2017, reduces taxes on tips and overtime pay, and makes deep cuts to Medicaid, food assistance and other social safety net programs. The legislation, which encompasses much of President Trump’s domestic agenda, passed last week by a narrow margin of one vote in the Senate, and 218 to 214 in the House of Representatives. It was signed into law by President Trump on July 4.

While our investment professionals continue to evaluate the law’s investment implications, here are some initial views on the macroeconomic and market impacts.

Tax cuts may spur growth, but rising debt is worrisome

— Darrell Spence, U.S. economist

The tax cuts should be modestly supportive of U.S. economic growth this year and next. However, whether the fiscal stimulus makes up for any headwinds created by a tariff-fueled trade war remains to be seen. Our economic team’s base case is that U.S. gross domestic product (GDP) will grow at a rate of roughly 1% to 1.5% this year, as inflation and unemployment levels move moderately higher, and policy-related impacts and uncertainty start weighing on economic momentum in the second half of the year.

The law is expected to cement U.S. deficits around 7% of GDP in the coming years, up from 6.4% previously, adding about $3.3 trillion to U.S. long-term debt over the next decade. High debt levels generally lower the long-term potential growth of the economy, as interest payments crowd out other spending priorities. This year, we’ve already seen interest expense on the debt exceed the level of defense spending.

For investors, rising U.S. deficits could mean higher interest rates down the road as the federal government has to sell more Treasury securities while buyers might be slightly more reluctant to purchase them. Higher deficits also may result in a steepening of the yield curve, that is, investors demanding more yield for long-term bonds relative to short-term bonds.

Given the balance of events — including these tax cuts, an ongoing trade war and signs of slowing economic growth — we may see the U.S. Federal Reserve begin to reduce the federal funds rate later this year, particularly if we experience a significant uptick in unemployment. However, rising inflation could make that decision increasingly difficult.

Bond markets are adapting to higher debt levels

— John Queen, fixed income portfolio manager

Concerns about rising U.S. debt levels are nothing new. When I first started in finance 35 years ago, the biggest worry was the sustainability of our national debt. I don't mean to trivialize the issue as we have seen a significant increase in long-term debt relative to the size of the U.S. economy, particularly over the past decade. Despite that, the U.S. dollar’s unique position as the world’s primary reserve currency continues to go largely unchallenged.

It's also important to keep in mind that the interest rate market is incredibly efficient. As big as the U.S. Treasury market is, the swaps and futures markets investors use to trade around U.S. rates is vastly larger. It is very good at looking past current worries, focusing on the long term, and putting a fair price on the risks and opportunities for investors.

Certainly, as a bond investor, I do worry about the size of the debt and what it might mean for financing costs. But when that worry may actually become a reality is unknown, and it has been for decades. Many people have predicted that catastrophe is right around the corner and, someday, one of them is going to be right. Unfortunately, they are just guessing, so I am not going to predict that. I am instead going to say that I think the market is good at pricing in those concerns.

U.S. industrials sector stands to benefit

— Matt Hochstetler, equity portfolio manager

From an equity market perspective, the law is poised to potentially deliver a meaningful boost for capital-intensive companies reshoring manufacturing to the U.S., as well as those carrying significant research and development (R&D) expenses. Likely beneficiaries of the law include industrial machinery manufacturers, heating and ventilation system providers, pharmaceutical innovators, semiconductor companies and major technology firms.

Banks could also see near-term upside, given the capital raising necessary for large-scale infrastructure projects. Nevertheless, overall deficit and debt levels do create longer term risks.

Key provisions in the law open the door for immediate expensing of certain equipment and R&D costs on corporate tax returns. The extension of 100% bonus depreciation for new factories and equipment effectively accelerates write-offs and lowers taxable income, freeing up capital for reinvestment. This measure could become a powerful tailwind for free cash flow and spur fresh waves of investment across multiple sectors, assuming overall debt levels don’t drive interest rates too high.

Bonus depreciation and R&D write-offs may help fuel the next leg of investment in data centers critical for the AI boom. Since 2024, the race to dominate AI has intensified, with tech giants like Meta, Alphabet and Microsoft pouring billions into advanced data infrastructure.

An expanded tax credit for building semiconductor plants on American soil could strengthen domestic production for companies such as Micron Technology and Taiwan Semiconductor Manufacturing Company, along with suppliers of cutting-edge semiconductor equipment. Certain defense contractors stand to benefit as well, thanks to tens of billions earmarked for missile systems and shipbuilding.

Yet for all its support of certain strategic industries, the law also delivers setbacks to others. For example, consider the auto industry. The expiration of the $7,500 tax credit for new electric vehicle sales and leases lands as a blow to EV makers at a moment when Chinese manufacturers like BYD continue to pull ahead of their Western peers.

Meanwhile, the renewable energy push may lose steam. Incentives for solar and wind energy providers have been rolled back, while the oil and natural gas industries get new tax breaks. Elsewhere, planned Medicaid cuts could result in declining revenue for health care and insurance companies.

Large deficits posed by the law could fan the embers of inflation. In such an environment, I’m concentrating on companies that can sustain pricing power, defend profit margins and pass on rising costs in case we enter an inflationary environment.

U.S. dollar’s direction hinges on economic conditions

— Jens Søndergaard, currency analyst

The new tax bill has raised more concerns about the long-term dominance of the U.S. dollar. While that is understandable, investors should remain focused on the near-term determinants of the greenback’s performance, namely, relative economic growth dynamics and tariff policy.

While some investors have rotated into non-U.S. assets this year amid the uncertainty over trade policy, it’s important to recognize that the law’s potential to stimulate domestic growth may partially offset the adverse impact of increased debt servicing costs. The net effect on the dollar will likely hinge on the balance between fiscal expansion and investor confidence in U.S. economic resilience.

Additionally, the U.S. continues to offer positive real interest rates, making the dollar more attractive to investors. The dollar has shown an orderly decline this year, mainly reflecting adjustments to U.S. economic growth prospects, which imply narrowing the gap between U.S. growth rates and interest rates with those of Europe and other parts of the world.

Overall, bouts of dollar volatility may occur near term, but tariff policy and growth remain the market’s driving forces. Despite questions around the dollar’s bull run coming to an end, we are unlikely to be at a major turning point in the cycle. We would need to see either U.S. growth sharply weaken or growth in the rest of the world pick up strongly for a period of extended dollar weakness.

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