Reconciliation Bill's Risk to Bond Market & Equity Trading Range: Eric Johnston

Reconciliation Bill's Impact on Bond Yields

• ⚠️ The reconciliation bill is identified as a significant risk to the bond market, potentially causing upward pressure on yields.
• 📉 Previously, focus was on deficit reduction, leading to lower bond yields, but the reconciliation bill is expected to at best maintain the current deficit or cause it to rise.
• 📈 This upward pressure on rates is compounded by inflationary pressures stemming from tariffs.
• 📉 Counteracting factors include a likely economic slowdown and falling oil prices, which offer some support to the bond market.
• 🎯 The net outlook suggests a risk of yields moving to the upside.

Equity Market Outlook

• 📊 The risk of a substantial market downturn has been significantly reduced, suggesting a trading range for the next 3-4 months.
• 📈 The market is currently at the top end of this trading range, with institutions in the process of re-risking and increasing their positions.
• 📉 Retail investors and buybacks were buyers during April's sell-off, while institutions were sellers.
• ✅ The completion of the first trade deal and a reduction in tariffs on China are now behind us, removing potential headwinds.
• 📉 Looking ahead, expect slower economic growth, gradually rising prices, and further downward revisions to earnings estimates.