Senate Vote on Trump’s Tax Bill May Spark Gold Rally and Trigger Sector Rotation

Trump’s Tax Bill: A Catalyst for Market Repricing?

President Trump’s “One Big Beautiful Bill Act” faces a decisive Senate vote, holding major implications for stock indexes, gold prices, and Federal Reserve policy. The bill, which narrowly passed the House, combines sweeping tax cuts with significant new spending, raising the stakes for traders positioning into the July 4th deadline.

Tax Cuts and Spending Surge Stir Treasury Yields

The bill permanently extends the 2017 tax cuts, introduces tax-free tips and overtime pay, expands child tax credits, and enhances senior deductions, while maintaining the 21% corporate tax rate with permanent 100% bonus depreciation.

However, it pairs these cuts with $350 billion in new border security and defense spending, offset by deep healthcare cuts projected at nearly $1 trillion over a decade. The Congressional Budget Office estimates a $3.3 trillion deficit increase, potentially swelling to $5 trillion with interest, sparking a Treasury sell-off that pushed 30-year yields to 5.1%.

Federal Reserve Faces Constrained Rate Cut Options

The Federal Reserve held rates steady at 4.25%-4.50% but now faces reduced flexibility to ease policy. The fiscal stimulus risks igniting inflation, limiting the Fed’s ability to deliver the two rate cuts it previously projected.

Traders have scaled back expectations to 3-4 cuts over the year, with Fed Chair Powell warning of “meaningful inflation increases” from tariffs and additional stimulus. For traders, higher yields may pressure growth stocks reliant on cheap borrowing.

Gold Prices Rally as Deficit Concerns Grow

Gold has emerged as a clear beneficiary, surging to record highs above $3,500 before consolidating near $3,290. Traders are seeking safety in gold as deficits and potential currency debasement threaten fiat confidence. Central banks’ record gold purchases and JP Morgan’s $3,675 year-end target underscore gold’s bullish outlook, making a 5-10% portfolio allocation to precious metals a consideration for hedging policy risks.

Sector Winners and Losers: Banks, Energy, and Healthcare in Focus

Financial services and energy stocks stand to gain from deregulation, drilling expansions, and higher rates. Clean energy and healthcare face pressure, with the bill cutting Medicaid significantly and eliminating clean energy tax credits.

Technology stocks could see mixed impacts, benefiting from tax cuts but challenged by tariffs on imported components, highlighting the need for selective positioning within the Nasdaq and S&P 500 sectors.

Market Forecast: Bullish on Gold, Selective on Equities

Traders should prepare for volatility as markets price in the bill’s passage likelihood. Expect a bullish bias on gold and financials while remaining cautious on growth stocks sensitive to higher yields and on sectors facing regulatory headwinds. Maintaining diversification while watching Senate developments closely will be critical in positioning portfolios effectively in the coming sessions.

More Information in our Economic Calendar.