U.S. Stock Futures Weaken as House Debates Trump's Tax Cuts

U.S. stock index futures weakened in pre-market trading on Wednesday as traders adopted a cautious stance on taking on more risk while the House of Representatives debated the Trump administration's core policy agenda, including tax cuts. Meanwhile, U.S. Treasury yields and the dollar also declined.

Investor sentiment has been fragile since Moody's downgraded the U.S. sovereign credit rating last week, raising concerns about the U.S.'s 3.6 trillion dollar debt. Meanwhile, President Trump is pushing for tax cuts, which could add another 300 billion to 500 billion dollars to the debt.

Trump is pushing for a tax cut bill aimed at stabilizing the economy and gaining support for the midterm elections, but the bill has sparked intense debate within the Republican Party and strong opposition from the Democratic Party. The outcome will determine the prospects for Trump's economic agenda.

Republicans held overnight negotiations on Wednesday over the tax cut bill, which is expected to make compromises on state and local tax deductions and government spending cuts. While investors have returned to the stock market in anticipation of easing trade tensions, the market is also questioning whether this rally can be sustained.

“The market has already priced in a lot of optimism, and many investors seem to believe that the trade war is over,” said an investment strategy manager. “However, the fundamental issues that have caused tensions for years have not been resolved.”

In the foreign exchange market, the dollar sell-off intensified, driving the yen, Swiss franc, and euro to their highest levels in two weeks. The pound rose to a three-week high of 1.3428 dollars. The UK's April inflation rate rose from 2.6% in March to an unexpectedly high 3.5%.

“The dollar has clearly lost its status as an undisputed safe-haven asset,” said a foreign exchange strategy manager. “Despite the 30-year U.S. Treasury yield rising to a high of 5%, this has not supported the dollar, as investors have flocked to safe-haven currencies such as the yen and Swiss franc.”

An indicator commonly used to gauge investor sentiment shows that foreign exchange options traders are currently more bearish on the dollar's outlook for the next year than at any other time. The one-year risk reversal indicator for the Bloomberg Dollar Index, which measures the cost of buying and selling a currency in the options market, shows that the premium for put options over call options has reached negative 27 basis points, indicating that traders are already paying a premium to hedge against the risk of dollar depreciation over the next 12 months.

This figure is the lowest on record, surpassing the level briefly reached during the market volatility at the start of the pandemic five years ago, according to data from Bloomberg since 2011. As President Trump's erratic trade policies continue to disrupt the market, investor sentiment towards the dollar has worsened over the past few months.

“People are starting to consider moving capital out of the U.S., although it's not yet a large-scale exodus, they are definitely paying more attention to opportunities in other markets,” said a research director. “We do not believe that the dollar, and U.S. assets as a whole, are at the beginning of a 'death spiral,' but we expect the dollar to weaken further as trade uncertainty fades in 2026 and lower interest rates drive global economic recovery. In addition, we expect large fund managers to gradually reduce their allocation to dollar assets.”

Analysts say that if the U.S. reaches an agreement with its trading partners, it could boost market risk appetite, but some are concerned that Trump's policies could continue to harm the global economy.

In the oil market, Israel may be preparing to strike Iran's nuclear facilities, causing oil prices to rebound. Traders say it is not yet clear whether Israel's leadership has made a final decision on whether to launch an attack.

Oil prices have been volatile since last week due to mixed messages about the prospects for nuclear talks between Iran and the U.S. If talks make progress, more Iranian oil could be released back into the market.

As the dollar weakens, investors are turning to safe-haven assets, and gold prices rose on Wednesday. Spot gold rose 0.7% to 3,310 dollars, hitting a one-week high.

JPMorgan Chase CEO Jamie Dimon warned on Tuesday that despite the market volatility caused by the trade war last month, the market's rapid and large rebound indicates that investors have become “extremely complacent,” and several market strategists agreed with him.

At JPMorgan's investor day event on Monday, Dimon said, “The market fell 10% and then rose 10%, and I think this shows an unusual level of complacency.” He is concerned that the market has lost awareness of potential risks.

In a report on Tuesday, a market technical analysis chief said that the five-day moving average of the widely watched put/call ratio in the options market has approached its lowest level in five years, indicating that investors are increasingly favoring call options and expecting the market to continue to rise.

Goldman Sachs Asset Management executives warned that the firm's clients are increasingly seeking to withdraw funds from the U.S. market. Matt Gibson, head of client solutions at Goldman Sachs Asset Management, said, “The U.S. is no longer seen as a safe and dominant market as it was six months ago.”

This executive noted that clients are increasingly asking whether the U.S. stock market's rally has “run its course” and whether they should turn their attention to European and Chinese stock markets.

When asked if clients have taken concrete steps to withdraw from the U.S. market, Matt Gibson said, “Everyone is considering this.” However, he emphasized that he knows of no one who has completely exited their investment in the U.S.

According to a survey of fund managers, more than half of stock pickers believe that the U.S. stock market will be the worst-performing major market in 2025.