How Trump’s Tax Bill Sparks a Stock Market “Baby Boom”

BY KEITH KAPLAN
CEO, TRADESMITH

I’m writing this the weekend after the largest budget reconciliation in U.S. history was signed into law.

President Donald Trump signed the One Big Beautiful Bill Act on Friday, July 4, while we were all celebrating the year before the U.S. semiquincentennial (there’s a new word for you – it describes a 250-year anniversary) with hot dogs and fireworks on a balmy summer evening.

This bill is HIGHLY consequential in lots of different ways.

It will have direct impacts on high earners, low earners, and middle-income earners alike.

It will impact taxpayers who earn tips… or who want to buy a new car… or who have children.

It will impact people who want to borrow money to go to expensive universities.

It will make accessing Medicaid quite a bit more difficult. Same for food stamps.

It has major implications for the future of U.S. energy production, favoring oil, gas, and surprisingly nuclear over solar panels and wind turbines.

This is to say, this bill is huge.

So huge, we can’t possibly cover everything today.

But I do want to cover one specific item that directly pertains to all Americans… and their young children… and even their plans to have more.

You see, a major part of this bill is the introduction of a new type of tax-advantaged investment savings account called what else but the “Trump account.”

The details of these accounts are unique in their own right. But what they represent is a major tell from the Trump administration pertaining to both the U.S. birth rate decline… and how it’s prioritizing the stock market.

Let’s go over how these Trump accounts work, what they mean for U.S. investors, and how I might suggest playing the trend in your existing portfolio…

What “Trump Account” Investing Means for You and Yours

The OBBBA creates a new tax-advantaged investment account designed to supplement, and in some ways rival, the custodial Roth IRA.

In these new Trump accounts, families and other benefactors can invest up to $5,000 a year in after-tax contributions until the beneficiary turns 18. In addition, these accounts will manage a $1,000 gift directly from the government to anyone born between 2025 and 2028.

That alone is an interesting setup. Americans have yet another tax-advantaged vehicle to invest for their family’s future. Not just that, their children have a kickstart fund from the U.S. government.

Might we potentially have a new baby boom on our hands (or at the very least a slowdown in the declining birth rate)?

Any new mothers or fathers out there – including our own Mr. Salvatore – ought to be paying attention!

But here’s the real kicker of these accounts:

In them, you can only invest in U.S. index funds. That means all the key benchmarks we talk about all the time – the S&P 500, the Nasdaq 100, the Nasdaq Composite, and the Russell 2000.

It’s a catch, and a limiting one… but as I said earlier, it’s also a major tell from the administration.

This simultaneously tells us two things:

The White House HIGHLY values the U.S. stock market and its performance. It wants to ensure investors will see great returns during Trump’s second term.
Any investor who takes part in these accounts will be contributing to a slow-but-sure rising floor on U.S.-based asset prices over the long term.

Let’s run some quick numbers on that second point.

Just starting off, we can assume that there will be around 3.62 million babies born in the U.S. That’s how many were born last year. That’s a $3.62 billion investment in the stock market directly from the government.

Then there’s the 73 million children in the U.S. that are eligible for Trump accounts. It’s unrealistic to assume every one of these children have parents or benefactors that will fund these accounts to their maximum contribution limit.

So, for the sake of simplicity, let’s instead imagine just half of those 73 million will receive half of the annual maximum contributions to these new accounts. That represents $91.2 billion of investments into U.S. index funds each year – and it’s about a quarter of what’s possible.

So we can round out the total influx to somewhere around $95 billion.

Compared to the current market cap of the most popular benchmark, the S&P 500 (about $52.8 trillion) that’s a little less than 0.2% per year.

But we have to remember that this is NEW money on top of all the 401(k), Roth IRA, Roth 401(k), and other automatic retirement account investing… in addition to the untold billions and trillions being invested actively from U.S. citizens and across the world.

And don’t forget, we have to account for the additional liquidity boost coming for any of those children born from 2025 through 2028, specifically. Using those same figures for three more years, that’s another $10 billion from the government and $270 billion from parents….

All in, using these assumptions, we’re looking at an additional $380 billion going into U.S. stocks over the next four years. And again, that’s just a quarter of the maximum potential of about $380 billion per year ($1.5 trillion over five years).

Those would be the tangibles.

But we also have to think about the knock-on effects of this new policy.

If the government is handing out $1,000 investment accounts for every baby born over the next four years, one has to imagine that will encourage people thinking about having children to push their plans up a bit.

Moreover, people that wouldn’t normally think about investing or retirement savings will suddenly find themselves with a Trump account loaded with $1,000. In time, they’ll see the numbers rise… and realize the potential of what’s in front of them to fund their children’s education.

Maybe they’ll even open up investment accounts of their own.

For my money, this new policy will drive a new generation of U.S. citizens to participate in the market. And that’s a good thing – not just for families who already invest, but especially for those who aren’t yet aware of what a wealth game-changer it is.

And don’t worry, you don’t need to have a new baby to benefit from this trend…

The U.S. Is Keeping its “Only Game” Status

For decades, U.S. stocks have been the only game in town. When the U.S. stock market is close to five times the size of the next biggest market, China, you see why. It’s the most liquid, composed of the most successful and influential companies, and on a long-term basis keeps growing at the fastest rate. And it’s hardly even close.

Why is this so important?

Because of the massive distrust in institutions that’s occurred over the last five years. Stay with me…

The government, the world health experts, the universities, the central banks, the judicial system – everything has come into question since 2020.

But the one thing that people seem to still understand and trust is the U.S. stock market.

The machine of capitalism has never been better oiled than it is today. The only proof we need is the fact that stocks have continually charted new highs through this period of mass distrust, and at an accelerating rate.

This move from the government doesn’t just cement the U.S. as the only game in town, it further entrenches it.

More Americans will have skin in the game than ever before. Specifically, every child born in the U.S. will automatically have skin in the game.

It’s a new kind of U.S. baby boom… One that doesn’t just encourage people to have children, but to have children that have a stake in the success of the country.

This time, the impact on the economy is immediate and significant.

My theory is this is going to drive high-quality U.S. stocks across all market cap classes higher.

We make it easy at TradeSmith to find companies like these. Take a look at this screener I put together…

This screener simply looks for U.S. stocks in our proprietary Green Zone – a volatility-based measure of momentum – in an uptrend, and with a Louis Navellier Stock Grade of A or B.

That trims the thousands of stocks across the S&P, Russell, Dow, and Nasdaq indices down to 431:

Sorting the list by Total Grade gives us the highest-quality stocks as determined by Louis’ Stock Grader.

And if you’re not familiar with Stock Grader, here’s why I specifically chose that filter today…

Louis is a 40-year market veteran. Decades back, he built his Stock Grader as a way to easily determine the best of the best stocks in the market – full stop.

Over the years, he’s adapted the grader to market conditions, making countless improvements to get where it’s at today.

The performance is impressive. If a stock gets an A grade, it has extremely high odds of outperforming the benchmarks. In fact, over the years that strategy has allowed Louis to recommend a staggering 675 stocks that doubled at their peak.

Knowing this, you want your portfolio to look like an arsenal of A-rated stocks and not much else.

That’s why we’re proud to host Louis’ Stock Grader system on our software platform. With it, you can grade your own portfolio at any time and find new stocks to buy.

Now, here’s why I tell you about Louis’ system right now.

According to Louis, we’re about to enter a new phase of the AI megatrend. And that’s not a vague “about to.” For reasons Louis will explain in detail tonight at 8 p.m. Eastern, he believes this will begin on Tuesday, July 22.

And it won’t be about the same old AI stocks anymore. It’s about a little understood segment of the AI market that’s set to leapfrog the incumbents… granting savvy investors potentially multiples on their money.

The event starts in just six hours, so make sure you take a second to register your attendance. You can do so automatically at this link.

I’ll also keep you posted on my X account about the charts that catch my eye each day – from Tesla (TSLA) to crypto to robotics and more. Follow me @KeithTradeSmith… it’s free and always will be.

How Trump’s Tax Bill Sparks a Stock Market “Baby Boom”