Trump's new trade deal promises billions to the U.S. — plus, reasons behind the mixed market

Tuesday's market saw broad declines, excluding chip stocks, as bond yields rose following in-line June CPI data and financials experienced profit-taking post-earnings. Concurrently, the U.S. secured a trade agreement with Indonesia, featuring a 19% tariff on Indonesian goods to the U.S. while U.S. exports remain exempt, alongside significant Indonesian commitments to purchase U.S. energy, agriculture, and Boeing aircraft. This comes amidst substantial new investments in U.S. AI data center infrastructure and grid modernization, exemplified by multi-billion dollar commitments from CoreWeave, Eaton, and GE Vernova in Pennsylvania, highlighting a surge in tech-driven capital expenditure. Investors now anticipate further bank earnings and key June economic data.

Analysis

The market displayed a divergent performance, with broad indices declining while semiconductor stocks, led by Nvidia, rallied. The primary drivers of the wider market weakness were spiking bond yields, a reaction to the June consumer price index which met estimates, and significant profit-taking in the financial sector following initial second-quarter earnings from names like BlackRock and Wells Fargo; this specific sell-off is viewed as potentially overdone. Counterbalancing this pressure were two significant positive developments. First, the U.S. secured a trade agreement with Indonesia that includes a 19% tariff on Indonesian goods, an exemption for U.S. exports, and Indonesian purchase commitments for $15 billion in U.S. energy, $4.5 billion in agricultural products, and 50 Boeing jets. Second, a wave of capital is flowing into U.S. technology infrastructure, highlighted by CoreWeave's $6 billion data center commitment, GE Vernova's $100 million grid investment and major turbine order for a data center, and Eaton's collaboration with Nvidia to power AI facilities. Investors are now positioned for further catalysts, including upcoming earnings from major banks and key economic data on industrial production and producer prices.

Key Decisions for Investors

• Consider the sell-off in financials like BlackRock and Wells Fargo as a potential overreaction and a tactical entry point, while monitoring for continued volatility ahead of more bank earnings.
• Reinforce exposure to the AI infrastructure theme by focusing on key enablers such as Nvidia, Eaton, and GE Vernova, which are direct beneficiaries of multi-billion dollar data center and grid modernization commitments.
• Monitor upcoming producer price data for further signals on inflation and interest rates, while noting that specific trade deals, such as the Indonesian agreement benefiting Boeing, can create idiosyncratic opportunities in an otherwise cautious market.