Thoughts from Themes: Dissent or Prioritize

The team at Themes ETFs would like to wish everyone a very happy Fourth of July!

On July 4, 1776, the Continental Congress adopted the Declaration of Independence in Philadelphia, a bold assertion of American sovereignty drafted primarily by Thomas Jefferson. This historic moment united 13 colonies in their resolve to break from British rule, embodying principles of liberty, self-governance, and economic autonomy despite intense debate and regional divisions. The delegates’ courage to prioritize unity and long-term prosperity over immediate discord laid the foundation for a new nation, celebrated as the first Independence Day. Nearly 250 years after America’s founding debates, the Senate has passed the One Big Beautiful Bill Act (OBBBA)—a sweeping reconciliation package that extends the 2017 tax cuts and introduces a slate of new fiscal policies.

Fiscal Fault Lines: Deficit Projections Drive GOP Dissent

Like the ideological clashes of 1776, OBBBA has ignited fierce contention: Republicans champion the bill as a vehicle for tax relief and economic growth, while Democrats and some GOP fiscal hawks warn of a projected $4 trillion deficit increase. Public discourse, amplified by figures like Elon Musk on social media, reflects the revolutionary spirit of disruption, with Musk’s third-party threats echoing past calls for new political alignments. While 1776 unified a nation in pursuit of independence, OBBBA’s passage marks a sharp turn in America’s economic priorities—underscoring the enduring tension between bold political vision and fiscal responsibility. A centerpiece of President Donald Trump’s 2025 economic agenda, the bill extends key provisions of the 2017 Tax Cuts and Jobs Act (TCJA) and introduces popular measures such as enhanced child tax credits, tax exemptions for tips and overtime, and the creation of tax-free “MAGA” savings accounts for children. After clearing the House Budget Committee on May 18, OBBBA passed the Senate amid pressure from a looming debt ceiling deadline and strong White House support emphasizing family income boosts and border security. Despite this victory, critics warn the bill’s fiscal impact could shape political and economic battles well into 2026.

Despite significant procedural and political hurdles, the One Big Beautiful Bill Act (OBBBA) ultimately cleared the Senate—though not without controversy. The Senate Parliamentarian removed several high-profile provisions, including voter ID requirements and cuts to EPA mandates, triggering frustration from Republicans. Fiscal concerns also loomed large: the Congressional Budget Office (CBO) estimated the bill could add $2.4 trillion to the deficit over the next decade—potentially rising to $5 trillion if temporary measures are extended. Office of Management and Budget (OMB) Director Russell Vought disputed those projections, arguing the bill would reduce deficits by $1.4 trillion over time through accelerated economic growth. Still, the CBO analysis galvanized opposition from GOP fiscal hawks. Senators Ron Johnson and Rand Paul were among the most vocal critics, with Johnson demanding offsetting spending cuts and Paul warning against a $4 trillion debt ceiling increase tied to the legislation. The Senate’s narrow 53–47 Republican majority meant that Majority Whip John Thune could afford to lose only three votes, intensifying internal negotiations. Despite the challenges, the bill passed before the late July debt ceiling deadline. However, Senate amendments require the legislation to be returned to the House for final approval—an added step that could prolong the legislative process even after the Senate victory.

Senate Floor to Social Stage

Also on June 30, 2025, Elon Musk escalated his opposition to OBBBA with a series of pointed posts on social media. Beginning around 12:25 a.m. ET and continuing into the early morning, Musk called the bill a “disgusting abomination” and an “insane spending bill,” claiming it would add $5 trillion to the federal deficit and “destroy millions of jobs” by propping up legacy sectors at the expense of emerging industries like electric vehicles. Citing CBO estimates of a $3.3 trillion increase in deficits over ten years, Musk urged Republicans to “kill the bill,” warning: “In November next year, we fire all politicians who betrayed the

American people.” While passage in the Senate marks a major milestone, OBBBA’s final enactment remains uncertain. The amended version returns to the House, where intra-party tensions and Democratic resistance could still delay or derail the bill before the deadline.

Our Thoughts on Big Tech

In the first half of 2025, tech stocks experienced significant volatility but rebounded to drive S&P 500 gains, with the index closing up 5% year-to-date (YTD) at 6,204.95 on June 30, after a 15% YTD low in April. The Technology Select Sector SPDR Fund (XLK) rose 8.67% over the past month and 22.3% in Q2, outperforming the broader market. However, the Communication Services sector, led by Meta (up 20% YTD) and Netflix (up 50%), outperformed tech with an 11% YTD gain via the XLC ETF. The Magnificent Seven (Mag 7)—Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla—saw mixed performance, significantly impacting the S&P 500 due to their 34.1% index weighting. After a very rough first quarter, Nvidia rebounded significantly and supported gains, fueled by AI chip demand. Conversely, Alphabet, Apple, and Tesla lagged, hit by tariff fears and AI monetization concerns following DeepSeek’s disruption. The Mag 7’s dominance skewed S&P 500 performance, as their 4% YTD decline contrasted with the equal-weight S&P 500’s 4.6% gain, highlighting broader market resilience. Excluding the Mag 7, the “S&P 493” would have been nearly flat, underscoring their outsized influence. This concentration, up from 20% in 2023 to 33% in 2025, raises diversification concerns, as their volatility—driven by AI spending doubts and policy uncertainty—can drag the index down, masking strength in other sectors.

Fed Facts

To cut or not to cut, that is the question: whether ‘tis wiser for the Federal Reserve to lower rates at its July 2025 meeting, easing economic strain, or to hold firm against inflationary tides, risking slower growth. The Fed, maintaining rates at 4.25%–4.50%, faces intense scrutiny as President Trump pushes for immediate cuts, arguing they would boost GDP and counter tariff-driven inflation. Trump’s pressure, amplified on X, frames rate cuts as vital to his agenda, including the One Big Beautiful Bill Act (OBBBA), which could add $4 trillion to the federal deficit over a decade, per CBO estimates. Higher rates exacerbate this burden, as the Treasury’s interest payments on the $34 trillion national debt already consume 15% of the 2025 budget, projected to hit $1 trillion annually by 2030 if rates persist. A rate cut could lower borrowing costs, easing debt servicing and stimulating investment, but risks fueling inflation, expected at 2.8% in Q3 2025. Conversely, sustained high rates could stabilize prices but strain consumers and increase default risks, with debt-to-GDP at 120%. Fed Chair Jerome Powell, wary of political influence, signals a data-driven approach, with markets pricing a 60% chance of a 25-basis-point cut. The OBBBA’s passage could force the Fed’s hand, as fiscal stimulus might overheat the economy, complicating the delicate balance between growth and debt sustainability.

Disclosures:

All data sourced from Bloomberg as of July 1, 2025, unless otherwise cited.

Views expressed in this newsletter are the current opinion of the author (Paul Marino). The author’s opinions are subject to change without notice. Information contained in this report was received from sources believed to be reliable, but accuracy is not guaranteed. Past performance is not indicative of future results.

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