Trumpenomics is Kicking In

Especially encouraging is that the expectations component soared to 72.8, up from 55.4 in April. Other components, like business conditions, employment prospects, and future income also rose in May.  

So even after consumer confidence had declined for five straight months, the May resurgence is a very hopeful sign as consumers are now suddenly upbeat.

By the first week of June, it was clear that investors should have disregarded any notion of “sell in May and go away.” All the major indexes rose robustly in May, possibly because multiple dynamic metrics were at work. The stock market is finally embracing a set of policies that broadly refer to Trump’s administration’s approach to tax cuts, deregulation, protectionism and trade policies.

However, nearly halfway through 2025, the U.S. equity market had already endured a 20 percent correction, a radical set of tariff policies—both employed or threatened—sweeping DOGE actions to cut federal spending and two scares within the Treasury auction market that did not go well.

One could say that, outside of some disgruntled federal employees being discharged because of the efforts to rid the government of waste, fraud and abuse, the U.S. economy is doing fine. In fact, the Federal Reserve Bank of Atlanta just gave a major thumbs-up to the economic outlook for our domestic economy. The GDPNow model estimate for real GDP growth in the second quarter of 2025 is 3.8 percent as of May 30, up substantially from 2.2 percent on May 27.

One thing that seems certain now is that the risk of recession is off the table.

Another welcome economic sign is that the Conference Board’s Consumer Confidence Index jumped to 98.0 in May. That was well above the consensus expectation of 87.0.

However, legendary Wall Street investor and founder of Bridgewater Associates, Ray Dalio, in his book, “How Countries Go Broke: The Big Cycle” (released June 3, 2025), maintains that a nation’s annual deficit should not exceed 3 percent of GDP.  Our current deficit is running at 6.6 percent—and this is coming in comparatively good times.  Imagine what might happen if a recession became a real risk or imminent and our annual deficit reached 8 percent of GDP.

Thankfully, the market believes the economy is on good footing now.  Still, Trump, Treasury Secretary Scott Bessent, and a GOP majority-controlled Congress should take the deficit and federal debt issue seriously, while there is still some sort of a twisted and belated “honeymoon period” in Congress. With a federal debt now running at over 120 per cent of GDP, can the strong economy also prosper its way out of debt, as some argue? 

Probably, but deficit spending must stop rising. Prosperity, in combination with fiscal conservatism, is the surest way out of this deficit mess. If the Atlanta Fed is onto something, then now is the time to strike while the political iron is hot.

Both the bond and stock markets will likely trade higher if Congress delivers a final “big and beautiful bill” that includes spending discipline. But beyond that, it must loosen the regulatory reins, foster tax relief to the middle class, and aggressively transform the job market to embrace the highly productive (yet disruptive) forces of AI so as to fill the employment vacuum within the industries it stands to impact the most. That mission statement should become their highest priority.