Where is the market headed? - Up. Earnings are getting revised upwards, and profit margins are expanding. By my simple reasoning, this means that the stock market will be higher one year from now. Today, we take a look at the “Big Beautiful Bill” (BBB) and how it can throw more fuel to the bull run.
Tech and pharma wins
When 1000 pages of legislation become law, it takes time for the market to absorb the implications. Now, details are getting clearer, and it is better than I previously believed.
First of all, the BBB gives huge tax breaks to businesses with high R&D expenses in the form of write-offs.. How does BBB change things? The bill restores the ability for companies to fully deduct their U.S.-based R&D expenses in the year they are incurred, reversing the 2022 rule that required spreading (amortizing) these costs over five years.
Tech firms, especially software companies with large R&D budgets (e.g., Microsoft, Oracle, Salesforce), benefit from improved cash flow and lower taxable income. This change is projected to increase free cash flow margins for major software firms—Microsoft could see a 4% margin boost, Oracle and Salesforce around 6%, and some even higher than 10%.
BBB retains and extends tax deductions for drug development and equipment, offering much-needed relief to early-stage biotech and pharmaceutical companies. This is particularly valuable for firms in the cash-intensive research phase. BBB maintains and expands exemptions for orphan drugs (treatments for rare diseases) from Medicare price negotiations, making rare disease R&D more financially attractive and potentially increasing investment in this sector.
But folks, it doesn’t stop here.
Investment boom
The write-off revolution continues. BBB introduces 100% immediate expensing for capital expenditures on qualifying assets—including equipment and structures—placed in service after January 19, 2025. This allows businesses to fully deduct the cost of new capital investments in the year the expenditure is made, rather than depreciating them over several years as under the previous law.
This entails that Businesses can instantly write off the full cost of investments in equipment, machinery, and new manufacturing facilities, rather than spreading deductions over multiple years.
Think about what this means for the data center build-out. If a datacenter invests $100 million in qualifying equipment and infrastructure, and the corporate tax rate is 21%, immediate expensing would allow the datacenter to deduct the entire $100 million in the first year. This results in a direct tax savings of $21 million in that year (i.e., $100 million × 21%). Naturally, this is a huge boon for the hyperscalers: Amazon, Microsoft, and Alphabet. By accelerating the deduction, data centers improve their after-tax cash flow, freeing up capital for further investment, expansion, or operational needs.
BBB covers all fixed investments, including capital goods orders. Take a farmer, for example, if he buys a $450,000 harvester, he can deduct the entire $450,000 from his taxable income that year. At a 21% tax rate, that’s a potential tax savings of $94,500 in the first year, freeing up capital for loan payments or additional investments.
The market has partially sniffed these effects out already. Caterpillar is up 2% in the last week. If interest rates fall, we can stand on the precipice of an investment boom covering the whole construction industry.
We've got more fun stuff.
Interest rate deductions
Under BBB, starting with tax years beginning on or after January 1, 2025, the limitation on deducting net business interest expense will be calculated using earnings before interest, taxes, depreciation, and amortization (EBITDA), rather than the more restrictive EBIT (which excludes depreciation and amortization deductions). This change will benefit all companies with high debt burdens, which typically affect many capital-intensive businesses, including manufacturers, utilities, infrastructure, and real estate. Some pharma companies also have a balance sheet laden with debt, where Amgen is a good example.‘
However, BBB isn’t only investor candy. Here are some losing sectors.
Renewable energy
BBB cuts $1,5 trillion in the budget over 10 years. Renewable energy gets hammered by over $500 billion in spending cuts. This will affect the electric vehicle manufacturers, wind and solar energy developers, manufacturers of solar panels, wind turbines, batteries, and related components, as well as their suppliers and logistics providers.
Cuts in Medicaid and food stamps.
The cut in food stamps will predominantly hurt consumer staples companies. Cuts in Medicaid are not a cut per se but a reduction in the growth rate, and don’t go into effect before 2028. The reduction will especially affect large Medicaid populations in rural districts. Potentially, with fewer people covered by Medicaid and lower provider payments, demand for drugs, devices, and related therapies is likely to decline, especially for products primarily used by low-income populations.
However, there is a caveat to all this. Congress will, most certainly, revise the policy before it goes into effect. Not giving patients aid will only mean that costs flow into other parts of federal, state, and local budgets. When patients lack insurance coverage, they often seek care in emergency rooms, where—under the federal Emergency Medical Treatment and Active Labor Act (EMTALA) enacted in 1986—hospitals are legally required to provide emergency treatment regardless of ability to pay. This care cannot be denied by state or local governments, but it is typically much more expensive than routine or preventive care provided in other settings. I doubt BBB saves any money on healthcare as the legislation stands today. In all likelihood, fine men of America will reach the same conclusion as I; we only have to give them some time.
Tariffs and student loans
People like me, investors, and the rich writ large, are the winners in the BBB. Trump voters in fly-over America and the newly graduated are the losers. BBB introduces sweeping changes to federal student loans, altering borrowing limits, repayment options, and deferment protections for students and parents. It is projected to save $350 billion in federal costs. The bill caps borrowing at much lower levels, removes most income-driven repayment options, requires longer repayment periods for forgiveness, and eliminates key deferment protections, making loans less flexible and potentially more expensive for many future borrowers. Current borrowers remain largely unaffected until 2028, but new borrowers after July 1, 2026, will face a stricter system. Many college graduates find themselves in distress these days when it comes to entry-level hiring. The onslaught of AI will likely lead to more friction in the job market, not less, making these kinds of provisions in the bill questionable from an equitable standpoint.
BBB’s regressiveness gets overlaid by Trump’s tariff policies. Tariffs hurt low-income earners more than high-income earners because tariffs function as an import consumption tax. Everyone pays the same higher prices for goods, but these increases consume a much larger share of a low-income household’s budget than a wealthy household’s. Essential items like food, clothing, and energy, core parts of low-income families’ spending, see some of the steepest price hikes
Conclusion
The U.S. economy has been running at two speeds for years, with wealth and consumption increasingly concentrated at the top. The wealthiest 10% of Americans now account for roughly half of all consumer spending, underscoring just how deeply economic power is concentrated. Trump’s BBB looks set to reinforce this divide, channeling even more benefits to those already at the top. For investors, this trend means continued opportunities in sectors catering to the affluent. Still, it’s worth considering what might happen if this growing imbalance sparks a backlash or broader social unrest. New York can go socialist, and it might be more to come.
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