U.S. stock index futures remain stable as concerns over the deficit trigger a sell-off, the market is in a wait-and-see mode, and CNBC says the so-called "Trump put" is unlikely to happen.

U.S. stock index futures remained stable in early trading on Thursday as the market absorbed the previous day's sell-off triggered by worries about the federal deficit. On Wednesday, the Dow Jones Industrial Average fell more than 800 points, while the S&P 500 and Nasdaq dropped 1.61% and 1.41%, respectively, due to the surge in U.S. Treasury yields. Investors are concerned that the tax and spending bills being reviewed by Congress could worsen the fiscal situation. CNBC pointed out that the deficit issue is hard to solve through administrative measures, and a "Trump backstop" scenario is unimaginable.

Deficit Concerns Trigger Market Turmoil

Wednesday's market sell-off was a direct reaction to the worsening U.S. fiscal situation. According to CNBC, the 30-year U.S. Treasury yield rose to 5.09%, marking a new high since October 2023, while the 10-year yield also climbed to 4.59%. This surge in yields is driven by concerns that the tax and spending bill currently under congressional review could further widen the deficit.

The bill, pushed by former President Trump and House Speaker Mike Johnson, aims to extend and expand several tax cuts from the 2017 tax reform. According to Cresset Capital's analysis, if passed, the bill would increase the budget deficit by about $3 trillion between 2025 and 2034. Moody's downgraded the U.S. sovereign credit rating last week, noting that "the current fiscal proposals are unlikely to result in substantial multi-year spending and deficit reductions."

Bond Market Reacts Strongly, Stock Market Under Pressure

The U.S. Treasury's 20-year bond auction on Wednesday yielded weak results, further heightening market tensions. According to Investopedia, the highest yield in this auction rose to 5.05%, up from 4.81% last month, while the bid-to-cover ratio fell from 2.63 to 2.46, indicating a clear decline in demand.

The surge in yields is putting pressure on the stock market. Morgan Stanley analysts pointed out that when the 10-year yield exceeds 4.50%, the relationship between stock returns and bond yields may turn negative, further depressing stock valuations. The S&P 500's current price-to-earnings ratio is 23.82, significantly higher than the 10-year average of 18, indicating that market valuations are relatively high.

"Trump Put" Difficult to Envision

In previous market cycles, investors held a "put" expectation regarding the Trump administration's policies, believing that its tax cuts and deregulation measures would support the stock market. However, CNBC's latest commentary points out that the current situation is different. The tax reform bill requires extensive congressional negotiation and has already faced resistance from blue-state Republican lawmakers, particularly on the issue of state and local tax (SALT) deduction limits.

"Unlike tariffs, Trump cannot unilaterally push through a tax reform bill," CNBC noted. "This deficit issue cannot be resolved with an executive order, making the so-called 'Trump put' difficult to envision."

Credit Rating Downgrade and Long-term Risks

Moody's downgrade is more than just a symbolic warning; it also reflects the severity of the structural issues in U.S. finances. According to Cresset Capital's analysis, the total U.S. national debt has climbed to $37 trillion, with interest expenses accounting for nearly 15% of the federal budget, surpassing defense spending. Without substantial reforms, the U.S. debt-to-GDP ratio is expected to rise to 250% by 2034.

While some investors remain confident in U.S. assets, Investopedia points out that global investors have begun to question the status of U.S. Treasuries as "risk-free assets." This erosion of confidence could lead to capital flowing into emerging markets and other asset classes.

Market Watch and Future Focus

Currently, the market's expectations for a rate cut by the Federal Reserve at the June meeting are very low. According to reports from Capital Spectator and Brugler Marketing, federal funds futures indicate a nearly 100% probability of maintaining rates at the June meeting, with only a 65% chance of a rate cut in September.

Investors will closely monitor the upcoming initial jobless claims data and manufacturing PMI to assess the resilience of the labor market and economic activity. Additionally, the progress of congressional deliberations on the tax reform bill will remain a key focus for the market, especially against the backdrop of intertwined deficit and inflation risks.

References

• United States Stock Market Index - Quote - Chart - Historical Data - News
• Brugler Marketing & Management, LLC -
• Treasury Yields Soar as Ballooning U.S. Deficit Worries Wall Street
• Market Update 5/21/25: Moody's Downgrade an Unsurprising Warning
• Stock futures are flat after a big sell-off on deficit concerns: Live updates
• CNBC Daily Open: It's hard to imagine a 'Trump put' for a deficit-induced U.S. market sell-off