Markets will struggle until Congress passes a the tax cut ...Middle East

Last Friday, I highlighted 8 things that were weighing on sentiment and that continues to be the case.

The market optimism didn't last long though and much of that is AI angst and tariffs but -- make no mistake -- the tax cut is a huge part of how markets will perform in 2025. It's impossible to know but I think it's 80% priced in, though you could argue it's much lower as the S&P 500 right back to where it was on election day.

All of that was good for growth but it also ballooned the deficit and it's set to expire at the end of this year. To extend it, Congress will have to act.

To me, that signals that there will be some kind of offset in the budget. Right now, that looks like deep cuts to Medicaid and food stamps. How those things reverberate through the economy could be keeping risk assets off balance.

When I sum it up, I just think that fiscal policy at the moment is too uncertain. There are some real hawks in Congress and there is no easy path to improving the budget balance. Doge is smoke and mirrors and there is no amount of tariffs that can make real difference.

This article was written by Adam Button at www.forexlive.com.

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