A Giant New Trade Deal... and the Market Yawned

Europe will buy more American energy... Drinkers in limbo... Buy the rumor, sell the fact... Handicapping China and the Federal Reserve meetings... Brace yourself for an eventful week...

There's a new deal...

Another set of imports is about to face a lower tariff.

Yesterday, President Donald Trump and European Commission President Ursula von der Leyen announced a new trade deal between the U.S. and the European Union.

Some big points of the framework:

• Most goods imported from the EU to the U.S. will face a 15% tariff. This is half of an earlier Trump threat of 30%... less than the 20% proposed by Trump on Liberation Day... and less than the 25% duty already levied on European-built cars.

• The EU will buy $750 billion of U.S. energy products, including oil, liquefied natural gas, and nuclear technology during the remainder of Trump's term, as part of a plan to wean off Russian energy dependence.

• Some goods are exempted from tariffs from both sides, including aircraft, semiconductor manufacturing equipment, and certain agricultural products.

Other items are left open-ended, like a pledge from European countries to increase purchases of U.S. military equipment. Tariff rates for wine and spirits are also still pending and not part of this deal, leaving drinkers and suppliers in continued limbo.

Of the deal's terms, the size of the promised EU energy buy was the flashiest and least previously "known" news. A number of U.S. energy stocks rose today, and the energy sector of the S&P 500 Index finished up more than 1% to lead all sectors in a "mixed" day for the U.S. indexes.

More room to grow...

Our Stansberry's Investment Advisory team and Commodity Supercycles editors have long been preparing subscribers with recommendations related to these two trends: America's rich energy resources and Europe's reliance on Russian oil and gas. As we shared back in February...

As this chart from the Commodity Supercycles team shows, the U.S. is already the leading exporter of LNG to Europe, for example (the trend took off at the start of the Ukraine war as European nations soured on Russian supply)...

The U.S. has more than tripled its natural gas imports to Europe since 2021 and diminished Russia's share. The Commodity Supercycles team explained the impact of the Ukraine war in their most recent issue...

Meanwhile, in Europe and Asia, Russia's role as a stable supplier of natural gas has been permanently damaged by its war on Ukraine. From a prewar 45% share of Europe's total natural gas supplies, Russia accounted for just 18% last year.

Even with Trump pushing for a quick end to the war in Ukraine, the conflict has already exposed the issues in Europe's energy supply chain. A resolution won't mean Russia goes right back to being the largest natural gas supplier in Europe.

The U.S. has already stepped in, and the trend will continue.

Back in October 2022, Stansberry Research senior analyst Bryan Beach and the Investment Advisory team published an issue titled "How America Will Save Europe From This 21st-Century Weapon," meaning Russia's weaponization of oil and gas in the Ukraine war.

One of the stocks recommended in that issue is still below our team's buy-up-to price, even after a 38% gain.

Investment Advisory subscribers can read our team's latest advice on the stock in last month's issue. And if you don't have access already and are interested in our flagship newsletter from Whitney Tilson and our team of editors, click here for more information about how you can try it today.

A telling lack of reaction in other ways...

For all the new European trade deal's real-world impacts on import tariffs and U.S. exports, the broader market shrugged it off.

The benchmark S&P 500, Dow Jones Industrial Average, and small-cap Russell 2000 Index were little changed today, and the tech-heavy Nasdaq Composite Index was 0.3% higher.

Our Ten Stock Trader editor Greg Diamond noted a "pop and drop" in Dow Jones Industrial Average futures last night. Greg told his subscribers this morning that it looked like a "sell the news" event where "the good news of a trade deal is a spot to take profit." He added...

Another way to look at this from a bigger picture is "Buy the Rumor, Sell the Fact" where the rumor of trade deals from April led to the market ripping higher and the fact that trade deals are done is now a place to sell.

That sure makes a lot of sense to me.

On April 9, the S&P 500 was nearing bear market territory... And the bond market was, as the president put it, "queasy." Then Trump announced a 90-day pause in most of his newly announced tariffs, and the major U.S. stock indexes took off almost instantly.

From the start of that rally, the market decided that Trump was willing to make deals with trading partners... and that he'd take action to save the markets from the worst pain. 

Lawsuits also emerged arguing against the legality of the reciprocal tariffs on the basis of a national emergency. (A federal appeals court is set to hear oral arguments in one of those lawsuits – V.O.S. Selections v. Trump – this Thursday.)

Put it all together and since mid-April, investors have increasingly believed "worst-case scenarios" about tariffs were off the table. The S&P 500 is up 28% since a one-year low on April 8.

Almost four months later, the market is "ho-humming" news about trade deals closing. This tells us the "news" was priced in long ago.

So don't expect much juice now from any new agreements. And if the president doesn't keep making the progress the market expects, stocks could slump on no further news.

On China...

Meanwhile, U.S. and Chinese officials are meeting today and tomorrow in Sweden for a third round of formal trade talks in the past three months. The current pause on exceedingly high "reciprocal" tariffs by each side is set to expire on August 12.

It sounds like the most these meetings will achieve is an extended deadline, with a 30% tariff on Chinese goods remaining in place during this "pause." Today, U.S. Trade Representative Jamieson Greer told CNBC that the sides are talking, which is a "good sign." But he's not anticipating an "enormous breakthrough" in these discussions.

As we wrote last week, U.S. Treasury Secretary Scott Bessent is working on these big issues in the trade negotiations...

Now, Bessent says, rather than tariff rates, the U.S. agenda in Sweden will be...

1. Having China pull back on its "glut of manufacturing." Bessent said China's 30% of global manufacturing and exports is "unsustainable." Instead, China should "concentrate on building a consumer economy" of 1.4 billion people.

2. Discussions about the "sanctioned Russian and Iranian oil that [China is] buying"... what China is "doing to aid Russia in the Ukraine war"... and the U.S. potentially imposing secondary tariffs of 100% on buyers of Russian oil.

Those are some heavy topics that aren't likely to be resolved in two days. So, put simply, don't expect much publicly out of talks with China this week other than an agreement to keep delaying another tariff hike.

Plenty else could move the market, though, starting with the Federal Reserve...

Most notably, it's another "Fed week."

The central bank's latest two-day policy meeting will wrap up on Wednesday afternoon with its latest announcement and press conference from Fed Chair Jerome Powell. Traders and Wall Street algorithms will be hanging on Powell's every word to glean insight into where rates may go next, and how soon.

The prevailing market expectation is that the Fed will do nothing tomorrow and keep its benchmark bank-lending range where it is: between 4.25% and 4.50%. Federal-funds futures traders give the Fed a 97% probability of holding rates steady.

But some big questions remain about the path of rates for the rest of the year...

Trump just got done literally back-slapping Powell, while encouraging him to lower interest rates, during a tour of the Fed headquarters last week.

Powell, meanwhile, has repeatedly said that tariff uncertainty (and the threat of higher prices for consumers in the U.S.) has caused the central bank not to cut rates when it otherwise would have this year.

Handicapping the meeting...

As of today, fed-funds traders see a 64% likelihood of a cut at the Fed's next meeting in September. And they're putting 81% odds on rates being lower than today's level by the bank's subsequent meeting in late October.

Commentary or guidance that alters those expectations – particularly a "hawkish" tone that suggests rate cuts are further off than envisioned – could stoke some volatility.

Apart from that, the most shocking thing would be if the Fed announces a rate cut on Wednesday. That is unlikely, but you might see some dissenting votes on the 12-member Federal Open Market Committee policy-setting board if Powell elects to keep rates where they are.

Fed voting member Chris Waller – a name mentioned as a possible Powell replacement, as Trump has said he wants the Fed chair out – was pretty clear about his stance on lower rates in a speech earlier this month.

We would hope that someone in the media will also ask Powell if he plans to stay for the rest of his term as chair, which ends in May. If he gives any indication that he might step down, the market will expect lower rates sooner than later. As we know, Trump wants only "low-interest people" running the Fed.

It's also 'jobs week,' and earnings season continues...

By the end of the week, the market will also have a fresh look at the state of the labor market to consider. The latest job openings and labor turnover survey ("JOLTS") report comes out tomorrow... ADP's private-payrolls report will be published on Wednesday... and the July "nonfarm payrolls" report with an updated unemployment rate is due out Friday.

Last month, ADP's report showed a decline of 33,000 private-sector jobs in June, the first month-over-month decrease since March 2023 and way off Wall Street's expectations of a 100,000 increase. Another report like that would strengthen the case for Fed rate cuts.

On the other hand, the unemployment rate is sitting at 4.1%, which is down a hair from its 12-month high of 4.2%. Initial jobless claims have declined every week since the start of June, which could be a signal of the unemployment rate going even lower. That wouldn't be reason at all to lower interest rates.

Throw into this mix a new inflation read, too. The personal consumption expenditures ("PCE") index comes out Thursday morning. Plus, we'll see more earnings from the Magnificent Seven – Meta Platforms (META) and Microsoft (MSFT) on Wednesday, and Apple (AAPL) and Amazon (AMZN) on Thursday. If any of these reports surprise the market, we could have an active rest of the week.

New 52-week highs (as of 7/25/25): Allegion (ALLE), Broadcom (AVGO), Alpha Architect 1-3 Month Box Fund (BOXX), BWX Technologies (BWXT), CBOE Global Markets (CBOE), DXP Enterprises (DXPE), iShares MSCI Spain Fund (EWP), Comfort Systems USA (FIX), GE Vernova (GEV), Intercontinental Exchange (ICE), iShares U.S. Aerospace & Defense Fund (ITA), JPMorgan Chase (JPM), Lincoln Electric (LECO), Lumentum (LITE), VanEck Morningstar Wide Moat Fund (MOAT), Microsoft (MSFT), Newmont (NEM), Ryder System (R), ResMed (RMD), ProShares Ultra Technology (ROM), Stryker (SYK), TransDigm (TDG), Uranium Energy (UEC), Vanguard S&P 500 Fund (VOO), VeriSign (VRSN), and Industrial Select Sector SPDR Fund (XLI).

In today's mailbag, feedback on this weekend's Masters Series essays (here and here) by Joel Litman, chief investment officer for our corporate affiliate Altimetry. Joel wrote about the growing infrastructure needs to meet the demands of artificial-intelligence developments... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Yes, reliable ample electric power is needed [for AI]. Small nuclear systems might be the answer. But an area where ample freshwater is available for electronic cooling is a must! So states with plenty of freshwater lakes might be ideal, like GA, SC, NC, VA, MI, WI." – Subscriber George B.

All the best,

Corey McLaughlin with Nick Koziol
Baltimore, Maryland
July 28, 2025