Remember when your parents used to fight and then suddenly get quiet because they realized you were listening? That’s basically what happened with the US and China this weekend, except instead of awkward family dinner vibes, we got a stock market party.
Here’s the tea: Top economic officials from both countries sat down at the ASEAN Summit in Malaysia and basically said, “Hey, maybe we should stop threatening to economically nuke each other.” The result? A framework for a trade deal that could pause Trump’s threatened 100% tariffs (yes, you read that right – 100%) and China’s rare earth export controls.
Why This Actually Matters (Beyond the Obvious)
If you’ve been following the AI boom – and honestly, who hasn’t at this point – you know that rare earth elements are like the secret sauce in your favorite recipe. China controls about 70% of global production and over 80% of refining capacity. They’ve been playing hard to get with exports lately, which is like your drug dealer suddenly getting picky about who they sell to.
Treasury Secretary Scott Bessent says China might delay their rare earth licensing requirements for a whole year. Translation: AI companies can breathe again, and that massive cloud hanging over tech stocks just got a lot lighter.
Trump and Xi are meeting Thursday in South Korea to potentially make this official. It’s like watching two CEOs who’ve been subtweeting each other finally agree to a coffee meeting.
Meanwhile, Inflation Decided to Chill Out
Friday’s inflation report came in softer than expected – 3% year-over-year instead of the feared 3.1%. It’s still higher than the Fed’s 2% target (because apparently 2% is the economic equivalent of room temperature), but it’s not the scary number Wall Street was bracing for.
This gives the Federal Reserve a green light to cut rates by a quarter point on Wednesday. Traders are 96.7% confident this will happen, which in trading terms means “yeah, it’s happening.”
The AI vs. Everything Else Economy
Here’s where things get weird. Eight tech companies (the Magnificent 7 plus Broadcom) are now worth over $1 trillion each and make up 37% of the entire S&P 500. Broadcom is up 53% this year, Nvidia nearly 40%. Meanwhile, regular consumer stuff? Up less than 5%.
It’s like we’re living in two different economies. One where AI companies are printing money faster than the Fed, and another where people are financing their burritos in four installments. (Yes, that’s a real thing happening with buy-now-pay-later services.)
The Bottom Line
This trade deal framework removes a major headache for AI investors and tech stocks. Combined with the Fed likely cutting rates, it’s a pretty good week to own growth stocks. But remember – when people are financing takeout food, the “everything else” economy is struggling.
The smart play? Ride the AI wave while it’s here, but keep your exit strategy handy. Because when the music stops, you don’t want to be the one left holding the overpriced tech stock.