In my weekly market reports and elsewhere in my content, I sometimes make reference to a number of different concepts when describing the state of financial markets. I am aware that some readers and listeners might require a little more clarity in plain English around these terms and so that’s why I have written this post.
“2025 Tax And Spending Bill”
What It Means: Labelled by Trump as “One Big, Beautiful Bill” . As it stands right now (and changes are likely), most of it involves routine funding extensions, but the potential market-moving parts include:
An extension of the terms of the 2017 Tax Cuts and Jobs Act (TCJA), many of which sunset at the end of this year. This is table stakes as far as the financial markets are concerned and failure to deliver will be huge negative
The establishment of a definitive $15m estate tax exemption, inflation-adjusted annually. This would be in place of the constantly moving target of recent years.
An increase to the State And Local Tax (SALT) exemption limit imposed by Trump in 2017 (there had previously been no limit) from $10k to $40k. This essentially refers to how much of a homeowner’s local property taxes can be used to offset Federal income taxes. Obviously, this disproportionately impacts residents of high cost/high tax states like New York and California.
An “revenge tax” on foreign investors in US securities if they come from countries that have certain policies that the US government does not approve of
Elimination of taxes on tips and overtime pay
Reduced spending and increased oversight and fraud detection on Medicaid and SNAP (Food Stamps)
A discontinuation of electric vehicle tax credits
An end to all solar tax credits by 2028
$50 billion to build the Southern border wall
$150 billion for defense, including the so-called “Golden Dome” missile defense system
As the bill moves through the legislative process, it is evolving with proposals regularly adopted and others jettisoned. The Tax Foundation provides updates to what the bill actually contains and the likely effects on taxpayers and the economy. Here is a recent update.
“Fed Funds Interest Rate”
What It Means: the Federal Funds Rate (FFR) is the interest rate that banks pay to borrow overnight from other banks and is the biggest tool of the US central bank, the Federal Reserve. The rate is determined by the Federal Open Market Committee, which meets eight times a year to assess inflation, employment and overall economic stability.
Why It Matters: A lower FFR typically means cheaper loans for consumers and businesses. And when borrowing money is easy and cheap, you’re incentivized to save and more willing to spend and invest. The increase in spending juices the economy, boosts innovation and lifts spirits.
The opposite is true, too. A higher FFR typically leads to more expensive loans across the board. Higher rates lead to less borrowing/spending/investing, and more saving – essentially putting the brakes on the economy. Typically, the Fed will increase the FFR when the economy is growing so fast that inflation becomes a problem (see 2021-2022).
“Stagflation”
What It Means: Stagflation is the simultaneous appearance in an economy of slow/slowing growth and high/rising prices, sometimes - but not always - accompanied by high unemployment. The technical definition is: when US gross domestic product growth falls below 1.5% annually while inflation as measured by the Core Personal Consumption Expenditures (PCE) index rises above 3%.
Why It Matters: Economic policymakers find this combination particularly difficult to handle, as attempting to correct one of the factors can exacerbate the other. The Federal Reserve’s reaction to economic STAGnation, for example, is traditionally to lower interest rates, but the reaction to inFLATION is to raise them. That makes stagflation hard to fight and can potentially lead to an extended period of market volatility.
“Bond Vigilantes”
What It Means: Highly influential institutional investors who wield market power by aggressively selling government bonds in response to fiscal policies they view as inflationary or irresponsible without high accompanying levels of economic growth, thereby driving up market interest rates and pushing down bond prices. They also have been known to drive down the value of a country’s currency, making imported goods more expensive for its citizens and potentially increasing levels of inflation. Central banks and governments are unable to exert any control over the activities of bond vigilantes.
Why It Matters: When bond vigilantes get to work, it’s usually bad news for stocks as borrowing costs move sharply higher and, by definition, economic conditions deteriorate. Past examples of bond vigilantism include during the Clinton administration in 1994, the post-Great Financial Crisis period in 2009, the “taper tantrum” of 2013, the stimulative response to the pandemic in 2021 and 2022 and they arguably forced the resignation of British prime minster Liz Truss in 2022.
Here is an account of an example of how the bond vigilantes forced a massive climbdown by a US president.
“Official Correction”
What It Means: When a market falls by 10%+ from a recent 52-week high. History tells us that the average market loss during an S&P 500 correction is about 13% and that loss has been completely recovered over an average period of about four months. Of the 15 corrections prior to that of early 2025, the S&P 500 has been higher one year later 13 times.
“Official Bear Market”
What It Means: When a market falls by 20%+ from a recent 52-week high.
“Official Bull Market”
What It Means: When a market rises by 20%+ from a recent 52-week low.
“TACO”
What It Means: Trump Always Chickens Out. This is based on the idea that the president makes an outlandish and significant tariff proposal on a major US trading partner (China, the EU, Mexico, Canada etc.) providing shock and awe but then swiftly backtracks and either delays the implementation or exempts enough goods so that the tariff becomes toothless.
“Magnificent Seven”
A shorthand way to refer to the group of: Apple, Microsoft, Nvidia, Alphabet/Google, Amazon, Meta/Facebook and Tesla. In early 2025, these stocks accounted for about 30% of the weighting of the S&P 500 index.
“Dot Plot”
What It Means: Four times a year (March, June, September, and December), the Federal Reserve Open Market Committee (FOMC) publishes a Summary of Economic Projections (SEP) at its corresponding rate-setting meeting. The summary includes forecasts for where key economic indicators like Gross Domestic Product (GDP), inflation, and unemployment will be in coming years.
The release also includes a dot plot chart, which maps out each member’s projections for where interest rates will be in up to three years and over the longer-run using a series of dots. The median forecasts on the chart tend to get the most attention, since they may represent the most central possible path for interest rate policy.
“Triple Witching”
What It Means: Triple witching is the simultaneous expiration of stock options, stock index futures, and stock index options contracts, all on the same trading day. This happens four times a year, on the third Friday of March, June, September, and December.
Why It Matters: Triple-witching days usually generate far more trading volume and volatility since expiring contracts result in the unavoidable buying or selling of the underlying security. Traders seeking derivative exposure must close, roll out or offset their open positions before the close of trading on triple-witching days, which has the potential to stoke turbulence by accelerating and amplifying price moves, particularly in the final hour of trading before the closing bell at 4pm ET.
“Goldilocks”
What It Means: Not too hot, not too cold. Just right. Economic data slows just enough to cause the Fed to not have to consider raising interest rates, but the economy doesn’t slow so much that we have to worry about a recession.
Why It Matters: In order to keep interest rates low, the Fed needs to be convinced by economic data that i) inflation is under control and close to its 2% target, and ii) the labor market is in balance, which means the unemployment rate not too high or too low (commonly considered to be in a range of 3.5%-4.5%). That means that while economic growth does indeed slow, it slows just enough to allow the Fed to position rates in a place that increases the chances the economy avoids a recession. A Goldilocks state is ideal for investing because stocks perform well as companies grow and generate positive earnings growth and bond prices remain stable at worst and have the ability to move higher as interest rates remain stable or move incrementally lower.
“Soft Landing”
What It Means: A gradual, relatively painless slowdown in economic growth that ends without a resulting period of outright recession.
Why It Matters: This is the ultimate goal of a central bank following a period when the economy has experienced a period of relatively elevated interest rates that were put in place with the goal of curbing inflation. A soft landing is extremely hard to achieve and doesn’t happen often, but when it does it’s powerfully positive for stocks, bonds and real estate.
“Hard Landing”
What It Means: A marked economic slowdown or downturn following a period of rapid growth often resulting from the Fed overshooting, keeping interest rates too high for too long and only succeeding in lowering inflation and increasing the unemployment rate by means of directly causing a harrowing economic recession.
Why It Matters: An economy experiencing growth that is slowing at such a pace that it begins to spin out of control can easily precipitate a stock market crash, financial crisis or a collapse of investor confidence. Often these events can then spiral into a general recession too quickly for policy makers to mount an effective policy defense.
“No Landing”
What It Means: That economic growth doesn’t slow and the Fed responds by keeping interest rates too high. In this environment, the economy just rolls on with high employment, solid growth and still-elevated interest rates rates (à la mid-1980s). But No Landing can by definition only be temporary, as eventually the economy will slow as a result of where interest rates are and the question then simply becomes by how much. So No Landing essentially just delays the ultimate Hard Landing vs. Soft Landing resolution.
Why It Matters: A No Landing would be a short-term moderate positive for most stocks and any rally would likely keep going, although this scenario risks being something of a negative for bonds and real estate as higher interest rates persist for longer. As for what happens next, it totally depends on whether No Landing is followed by a Hard or Soft Landing.
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