CNBC Daily Open: Investors seem conditioned to expect Trump reversals

President Trump extended the 145% tariff on Chinese goods by 90 days, a widely anticipated decision that temporarily defuses a significant trade war escalation between the world's largest economies. Despite the potential economic relief, major U.S. and European equity markets closed lower, indicating the extension was largely priced in or overshadowed by other factors, and highlighting investor acclimatization to the administration's unpredictable policy shifts.

Analysis

The 90-day extension on the 145% U.S. tariffs on Chinese goods, while averting an immediate escalation in the trade war, failed to buoy markets, which saw major U.S. and European indices close lower. This market reaction suggests the delay was largely anticipated and priced in by investors, who now appear conditioned to the administration's unpredictable policy shifts and rhetoric, as exemplified by President Trump's reversal on Intel's CEO. Investor focus seems to be shifting from geopolitical headlines to more fundamental data, with traders awaiting the upcoming consumer price index release. Amidst this backdrop, there are pockets of distinct activity; Citibank upgraded its S&P 500 forecast, citing strong earnings and expected policy benefits, indicating a more positive medium-term institutional outlook. Concurrently, a specific arrangement allowing Nvidia and AMD to resume China sales in exchange for revenue sharing with the U.S. government is viewed as a net positive for the companies, providing clarity and restoring access to a critical market, albeit through what analysts term an "unusual" transactional policy.

Key Decisions for Investors

• Investors with exposure to Nvidia and AMD should view the China revenue-sharing agreement as a positive de-risking event that secures access to a key market, supporting a more stable outlook for these specific stocks.
• Given the market's muted response to the tariff delay, it is prudent to shift focus towards upcoming fundamental catalysts, such as the consumer price index and corporate earnings quality, rather than trading solely on geopolitical headlines.
• The administration's demonstrated policy unpredictability warrants maintaining a cautious stance, as sudden reversals in tone or strategy could introduce unexpected volatility, making it unwise to build oversized positions based on singular political announcements.