US Runs Annual Trade Deficit Up to $901 Billion, One of Biggest Since 1960
Summary
- The US annual trade deficit has widened to $901 billion, primarily driven by rising imports, which signals resilient domestic demand rather than economic weakness.
- A divergence has emerged between inflation metrics: while CPI is trending lower, PCE (the Fed's preferred gauge) remains firm, suggesting the Federal Reserve will pause rate cuts in H1 2026.
- The outlook for 2026 remains bullish with potential for 5-7% nominal GDP growth, supported by easing financial conditions, upcoming consumer tax cuts in Q1/Q2, and a robust pipeline of corporate CapEx (specifically in API/Tech investment).
Trade Ideas
"The Fed is actually targeting PC inflation, not CPI. So this firmness in PC inflation I think reinforces my view that the Fed will probably do nothing until Chair Powell leaves." The market may be mispricing rate cuts based on softer CPI data. Because PCE remains firm, the Fed will likely keep rates on hold through H1 2026. Investors should not position for aggressive easing in the short term. Avoid betting on immediate rate cuts; expect yields to remain stable or elevated. A sudden deterioration in the labor market forcing the Fed to cut earlier than expected.
"We also have a lot of CapEx in the pipeline. When you look at company guidance for API investment, I think that's increasing in 26 relative to last year." Corporations are guiding for increased capital expenditure specifically in technical infrastructure ("API investment"). This points to sustained demand for software, cloud, and technology services as a key driver of the 5-7% nominal GDP growth thesis. Long Software and Tech Hardware providers benefiting from corporate CapEx cycles. Disappointing corporate earnings or guidance revisions.
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This Bloomberg Markets video, published February 19, 2026, discussing TLT, XLK, IGV. 2 trade ideas extracted by AI with direction and confidence scoring.