While President Donald Trump‘s “One Big, Beautiful Bill Act” is expected to reduce taxes and “put more money in people’s pockets,” experts argue whether the tax cuts will cater to the value or growth stocks within the U.S. economy.
What Happened: The new tax bill is expected to eliminate taxes on social security benefits, tips, and overtime, which will be a big “windfall for many Americans,” according to Louis Navellier, the founder and CIO at Navellier & Associates.
Additionally, the bill also proposes a $40,000 state and local tax (SALT) deduction. However, the Congressional Budget Office estimated that this bill will add about $3.8 trillion to the federal government’s $36.2 trillion in debt over the next decade.
Navellier, who expects interest rate cuts by the Federal Reserve in the coming months of 2025, said that “When you put more money in people’s pockets, consumers cannot help themselves, so retail sales tend to rise.”
He expects stocks like Brinker International Inc. EAT and CAVA Group Inc. CAVA to benefit as consumer spending at bars and restaurants rose 1.2% in April.
“As far as growth vs. value is concerned, I expect the Act to boost consumer spending and confidence, so growth stocks will beat value stocks,” he said.
However, Julia Khandoshko, the CEO at the European broker Mind Money, highlighted the current wait-and-watch stance by the Federal Reserve and said, “When rates rise, growth stocks suffer, and value stocks become more attractive.”
While tax cuts represent an expansionary fiscal policy, the Fed’s current stance of holding interest rates is indicative of contractionary monetary policy. Economic theories suggest that in a mixed environment like this, interest rates might rise, potentially dampening the effects of the expansionary fiscal policy.
Why It Matters: Notably, the CME Group's FedWatch tool‘s projections show markets pricing a 94.6% likelihood of the Federal Reserve keeping the current interest rates unchanged in its June meeting, a 73.1% probability of no change in July.
Whereas, it expects 65.1%, 83.9%, and 94.8% chances of a cut in September, October, and December meetings, respectively.
Apart from growth stocks like EAT and CAVA, Navellier highlighted that “data centers are booming,” and he owns growth companies like Argan Inc. AGX, Emcor Group Inc. EME, Comfort Systems USA Inc. FIX, Power Solutions International Inc. PSIX, Quanta Services Inc. PWR, and Vertiv Holdings Co. VRT.
Khandoshko also highlighted that the taxes “may look effective in the short term,” but since capital gains and interest income are taxed differently, “such measures create distortions that can hit the system.”
While Jerome Powell has reiterated that “The right thing to do is await further clarity” on the economy and effects of fiscal policy, it remains to be seen how growth and value stocks will be affected by the combination of fiscal and monetary policies.
Price Action: The SPDR S&P 500 ETF Trust SPY and Invesco QQQ Trust ETF QQQ, which track the S&P 500 index and Nasdaq 100 index, respectively, rose on Thursday. The SPY was up 0.039% to $583.09, while the QQQ advanced 0.19% to $514.00, according to Benzinga Pro data.
On Friday, the futures of the S&P 500, Nasdaq 100, and Dow Jones indices were trading lower.
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