Amid this week’s manufactured market panic over regional banks, analysts on various four-letter networks are out in droves. Their mission: Convince you, the individual investor, to sell so they can buy. It’s true – from apocalyptic predictions to politicized headlines, analysts who let their policy biases cloud their judgment largely missed the prime buying opportunity – Trump’s “Liberation Day,” with many hedge funds getting short all the way back in April and staying that way, despite a potent market rally.
This is data we track at Market Rebellion, with the help of our own short interest expert Geoff Garbacz. For months, he’s been reporting on an interesting phenomenon: Record high short interest that just keeps hanging on. To quote Jon Najarian,
“They’ve been wrong, and they’re not willing to take their lumps.”
But you can’t stay short forever. Between borrowing costs, margin requirements, and consistent new all-time highs, hedge funds are holding a ticking time bomb. If they hold on too long, it won’t matter whether they’re “willing” to take their lumps – margin calls have a funny way of making that decision for you.
So it makes sense that they would be coming out in droves to tell every day investors we are, “absolutely in a market bubble,” that “Trump tariffs” threaten to slow global growth, and that regional banks’ bad loans could signal ‘something bigger.’
Except articles like that and analysts who echo them are missing the bigger picture. A President who is, historically, among the most friendly to the stock market – to businesses. A government which is pursuing deregulation. And three more very important tailwinds for the market that will likely carry stocks, 401K’s, and the retirement portfolios of Americans everywhere higher throughout the remainder of Trump’s presidency.
1. A Rare Budget Surplus
The U.S. The Treasury made money in September. It isn’t the first month during the Trump presidency that the government has had a budget surplus, either. Last month, revenues totaled $535 billion, while outlays were $371 billion. This monthly surplus contributed to a fiscal year 2025 deficit of $1.8 trillion, a slight reduction from $1.817 trillion in 2024. Revenues for the year rose 6% to $5.226 trillion, driven by a 153% increase in tariffs ($118 billion) and gains in individual taxes, while outlays increased 4%.
What does deficit reduction support? Lower borrowing needs, easing pressure on interest rates and creating a positive environment for stocks.
Drivers of the Surplus: Revenue Gains and Spending Reductions
Revenues increased 2% year-over-year in September, with customs duties rising $22 billion (310%) due to tariffs implemented since February 2025. Individual income and payroll taxes added $31 billion (25%), reflecting steady employment and withholdings. Corporate taxes fell $45 billion from new investment deductions in the 2025 reconciliation act.
Outlays dropped $76 billion (17%), primarily from a $124 billion reduction in Department of Education spending tied to student loan program adjustments. International assistance increased due to reclassifications, while Social Security and Medicare saw inflation-linked rises. These changes demonstrate targeted fiscal adjustments without broad program cuts.
Overall, the fast-increasing debt was considered by many to be an insolvable problem – the elephant in the room that would one day have to be confronted. Under Trump, we’re actually starting to lower that debt. It’s slow and steady – but we have trimmed part of that debt, and over the next two years, it’s likely that trend continues.
It isn’t just the government surpluses that have us at Market Rebellion feeling bullish for the remainder of Trump’s presidency.
2. Bond Yields and Fed Expectations: Lower Rates Ahead
The 10-year Treasury yield fell to 3.95% on October 17, down 0.03 percentage points, marking its lowest since April. This decline reflects market bets on contained inflation and reduced government borrowing amid the surplus.
The Federal Reserve is expected to cut rates at its October 28-29 meeting. Governor Chris Waller supports a 25-basis-point reduction, citing a cooling labor market but resilient economy. Governor Adriana Kugler has indicated openness to a 50-basis-point cut if data weakens. The fed funds rate stands at 4.00%-4.25% after September’s cut, with markets pricing in further easing to 3.75%-4.00%. And Trump’s recent pick, Fed Miran, believes we should be moving towards a 50 basis point neutral rate – far lower rates than are currently priced in for even 2027. Lower rates would reduce corporate borrowing costs, boosting earnings and valuations.
However, Powell, one of the Fed’s anchors to a higher rate environment, is soon to retire. His term as Fed Chair will end in less than a year, and his replacement will be chosen by none other than President Trump. We know Trump supports much lower rates. We know that he chose Miran, and Miran is arguably one of the most dovish Fed members on the board.
However, the market, likely blinded by politics, isn’t yet seeing the vision that Trump is laying out clearly for rate cuts:
Above is the CME FedWatch tool. This is the number one tool that market participants use to “trade” the probability of certain rate decisions. Currently, the premise is that we will modestly cut rates to a place that many still believe is moderately restrictive, then stop cutting rates entirely, ironically just two months after Powell is set to retire.
Unlikely. What is likely? Rate expectations shift even lower, because…
3. We Don’t Know it Yet, but Regional Bank Panic May Lead to Quantitative Easing
Bare with us: Regional Bank Panic is bad. We could absolutely see this week go red because of it. However, historically, panic of this variety has led to the government stepping in and providing backstop. In the case of liquidity needs and bank issues, one of those possible backstops is a simple rate cut – or two, or three, in rapid succession.
You may not like the idea of “printing money,” but remember – do not hate the game, do not hate the player, just learn to play the game better than your opponents. It isn’t so hard. In the majority of market dips like this one, the best choice is to buy the dip – the second best choice is to do nothing at all as the dip recovers itself. It’s a test not of knowledge, but of bravery. Brave investors who see the vision that Trump is putting forth, in this writer’s opinion, will come out on top in two years time.
And if markets do turn the corner on this weeks volatility, burning hedge fund shorts and rewarding holders, it could be the one-two punch that stocks need combined with high short interest to truly end this year off with a bang.
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