Wall Street ponders a potential debt reckoning from Trump spending plans: Morning Brief

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Now that Donald Trump has been elected to a second term as president, investors have had to reckon with paradigm shifts to their positioning, from tariffs to “DOGE.”

There’s also the bogeyman of the ballooning debt that the US will take on if Trump enacts his campaign promises. According to an analysis by the nonpartisan Committee for a Responsible Federal Budget, Trump’s plans will boost the debt by $7.75 trillion.

While that’s not a “today problem” for investors, they’re still grappling with what that increase could mean down the road.

“I think markets tend to react to the shark closest to the boat,” Rick Rieder, chief investment officer for fixed income at BlackRock, told me at the Yahoo Invest conference this week. “The shark on the debt dynamic is not going to be next to the boat in January or February, but it is going to get next to the boat sometime. I don’t know if it’s the latter part of 2025 or the beginning of 2026, unless they address the size of the spending dynamics, the amount of debt we’re issuing, and then obviously inflation relative to that.”

Rieder laid out a scenario where “bond vigilantes” could attack. Essentially, if regular buyers of government Treasurys decide that Trump’s fiscal policies are inflationary, they could stage a strike, or sell en masse, driving up yields. That, in turn, would increase debt servicing costs for the US government and create a ripple effect throughout markets and the economy.

Of course, US debt has been rising for years, and the federal government hasn’t had a surplus (with revenue exceeding spending) since the brief window between the end of the Clinton administration and the start of the George W. Bush administration. And markets have mostly looked the other way.

John Stoltzfus of Oppenheimer invoked Bill Gross’s famous “cleanest dirty shirt” comparison when explaining why: “The US stands out because of our accountability, our transparency, governance, and also our capability to innovate and the size of our economy,” he said in a recent interview.

That said, Stoltzfus, like most market participants, says federal debt will become a problem … eventually. For now, it’s more a discussion point than an economic obstacle.

Julie Hyman is the co-host of Market Domination on Yahoo Finance. You can find her on social media @juleshyman.

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