From Tax Reform Setback to Moody’s Downgrade: Is Safe-Haven Capital Ready to Return?

Market Overview

Last Friday, strong U.S. consumer sentiment and inflation expectations data weighed on equities, as markets recalibrated their outlook on the Feds rate path. However, optimism over potential progress in trade negotiations soon revived risk appetite, lifting all three major indexes.

Yet sentiment quickly reversed after the bell, when Moodys announced a downgrade of the U.S. sovereign credit outlook. The Nasdaq 100 and S&P 500 ETFs fell over 1% and 0.9% respectively. Treasury yields hit new intraday highs, gold trimmed losses but still posted a weekly decline, and the U.S. dollar gave back part of its earlier gains.

Policy Breakdown: The “One, Big, Beautiful Bill” Fails

Just hours before the Moodys announcement, the House Budget Committee rejected the GOP's proposed tax bill, which aimed to extend the Trump-era 2017 tax cuts. Touted as the “One, Big, Beautiful Bill,” the proposal was blocked in a 21–16 vote after four hardline Republicans joined Democrats in opposition.

According to the Joint Committee on Taxation, the bill would have added $3.72 trillion to the federal deficit over the next decade—raising serious concerns over fiscal sustainability. The vote dampened confidence in a 2026 tax cut rollout and underscored the fragility of Trumps policy agenda.

[Image Source: Bloomberg | “One, Big, Beautiful Bill”]

Market Structure: A Stalemate Across Equities, Bonds, and Gold

Despite a rebound in the S&P 500 from last months lows, policy and fiscal uncertainty remain the central headwinds:

• Equities: Price action remains choppy near highs, lacking the policy clarity needed for institutional long-term positioning.

• Bonds: Treasury yields continue to rise, marking the third consecutive weekly drop in bond prices—2024‘s longest losing streak to date.

• Gold: Though under short-term pressure, rising credit risk may soon revive gold’s safe-haven appeal.

Looking Ahead: Will Safe-Haven Flows Make a Comeback？

The market appears to be in a “freeze zone.” The failure of tax reform has stalled structural capital inflows into equities. Treasuries and the U.S. dollar are nearing their cyclical peaks. Meanwhile, gold—pressured by technical consolidation and rising policy risk—may emerge as a key beneficiary of capital rebalancing.

We believe fiscal and trade uncertainties will increasingly manifest in upcoming corporate earnings and consumer data. During this adjustment phase, sidelined capital is likely to reenter safe-haven assets—particularly gold, short-duration bond ETFs, and inflation-resistant sectors—to regain control of market momentum.

Gold Technicals

Gold pulled back after its RSI approached 70, falling from $3,235 to $3,217 in a short-term correction. Strong support lies in the $3,200–$3,220 zone, where buying interest may resume. If the level holds, a technical rebound toward resistance near $3,240 is likely. The broader trend remains bullish-biased with high volatility.

• Resistance: $3,248 / $3,263 / $3,400

• Support: $3,200–$3,220

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