蜜豆视频

Video: CIO's Eva Lee on China鈥檚 National People鈥檚 Congress (8:49)
Video: CIO鈥檚 Kelvin Tay discusses the impact of potential Trump tariffs (1:54)
Video: CIO Mark Haefele's on investing through heightened political uncertainty (3:40)

What happened?

US stocks fell and bonds rose on Monday as tech weakness, escalating trade risks, and renewed economic growth concerns prompted a broad risk-off move. The S&P 500 slid 1.8%, while the tech-heavy Nasdaq dropped 2.6%, weighed down by an 8.8% decline in AI chipmaker NVIDIA. NVIDIA's decline accounted for 30% of the fall in the S&P 500 index.

Bonds rallied as investors sought safety, with the 10-year US Treasury yield falling 5 basis points overnight to around 4.16% right now. On Tuesday, Japan's Nikkei 225 led declines with a 1.2% fall, while the Hang Seng index was down 0.3%. At the time of writing European stock indexes were trading 1-1.5% lower (DAX -1.9%) and S&P 500 futures pointed to a 0.1% decline at the open.

Several factors contributed to the decline in stocks.

NVIDIA, already under pressure in recent days after its quarterly results disappointed high investor expectations, declined on concerns that additional export restrictions may be placed on its chips. Sentiment was also hurt by additional information released by DeepSeek over the weekend that appeared to refute the argument that its model incurs losses when offering inferencing services at their standard rates.

US President Donald Trump on Monday confirmed he will go ahead with a new 25% tariff on Mexico and Canada, and will double tariffs on China to 20% over border and narcotics-related issues. Under the executive order, those tariffs went live at 12:01 EST AM. Trump also said that a separate order for reciprocal tariffs would come into effect on 2 April.

Canada has retaliated with a 25% tariff on CAD 30bn of US imports, which will extend coverage to a further CAD 125bn of US imports in 21 days if no resolution is met. China enacted a 10-15% tariff effective 10 March, targeting a raft of US agricultural products ranging from beef and pork to dairy, fruit, and grains. Mexico is expected to announce its response within the next 12 hours.

The impact of tariff threats on business sentiment was evident in the ISM Manufacturing PMI, which dipped to 50.5 in February, barely in expansion territory. The prices paid index rose considerably to its highest level since mid-2022, signaling increased cost pressures on businesses.

Brent oil crude prices fell 1.8% on Monday and declined a further 1.3% today, after the eight OPEC+ member states with additional voluntary production cuts in place announced that they plan to start unwinding their production cuts gradually from April. The energy sector was among the hardest hit in the S&P 500 on Monday, falling 3.5%. The OPEC+ statement reiterated the cautious stance of the group, indicating it can pause or even reverse Monday鈥檚 decision if market conditions require it. In our view, the oil market remains undersupplied, and there is no indication of a fight for market share, but rather a prudent unwind of the production cuts.

What do we think?

The AI investment cycle remains strong. Despite NVIDIA's post-earnings decline, the broader AI industry remains on solid footing, with demand for AI compute continuing to accelerate. NVIDIA's strong guidance reinforces the long-term AI investment cycle, supported by rising Big Tech capex, which is set to grow 35% in 2025 to USD 302 billion. AI spending is on track to reach USD 500bn by 2026, and the industry has projected a 36% CAGR for AI compute through 2029. AI adoption remains strong, with Big Tech citing that its issues lie in capacity constraints and not weak demand. This reinforces the improving monetization outlook, in our view.

That said, the AI diffusion regulation announced by the US Department of Commerce on 13 January, if implemented as planned, will likely impose strict export controls, further complicating the geopolitical and economic landscape for AI advancement. The regulation would limit access to advanced AI hardware for tier-2 and tier-3 countries, curbing innovation and hindering the global expansion of US chip exports. These developments could potentially weigh on global growth.

Since the launch of DeepSeek鈥檚 first model, there has also been a legitimate question about the terminal value of frontier models. AI algorithmic innovation is accelerating, leading to lower-cost inference. We expect these lower inference costs to lead to higher AI adoption and scaling laws to remain intact, leading to continued capex growth among hyperscalers that ultimately benefits hardware providers. At the same time, frontier models face more uncertain economics. We therefore recommend keeping diversified exposure to the AI value chain, focusing on vertically integrated companies along the value chain with strong exposure to the enabling and application layers.

Trump鈥檚 policies pose risks to growth but thus far the direct economic impact remains limited. While the tariff rhetoric has unsettled markets, we see it as part of President Trump鈥檚 negotiation strategy rather than a fundamental shift in trade policy. He has historically used aggressive language as leverage, often walking back threats after securing concessions. On Monday, for example, TSMC, the world's largest contract chipmaker, announced plans to make an additional USD 100bn investment in the US and build five additional chip factories. Though near-term uncertainty remains high, we do not expect tariffs on key trading partners to be broad, sustained, or disruptive enough to derail US economic momentum.

Economic growth concerns persist, but consumer fundamentals remain intact. The latest ISM manufacturing PMI weakened as tariff uncertainty weighed on business activity, while rising input costs kept inflation risks in focus. Still, January鈥檚 price consumption expenditures (PCE) price index data confirmed a gradual move toward the Fed鈥檚 2% target, and the labor data remain solid with rising wages and low unemployment, despite a modest rise in jobless claims last week. While trade tensions add uncertainty, the overall economic outlook remains stable, with Friday鈥檚 payrolls report set to provide further clarity on labor market conditions.

How do we invest?

Navigate political risks. Tariff-related uncertainty and trade policy shifts reinforce the need for portfolio diversification and risk management. In equities, capital preservation strategies can help manage the risks of equity losses, while mean-reversion strategies could be an effective way to harness increased volatility. We continue to favor high-quality fixed income such as investment grade corporate bonds, which provide insulation against trade risks. Additionally, long USDCNY positions could hedge trade-related risks, while CAD and MXN exposure should be hedged or avoided in the near term. Gold remains an effective hedge against geopolitical and inflation risks, and certain hedge fund strategies may offer resilience in volatile markets.

More to go in stocks. Despite tech sector weakness and trade-related concerns, we continue to expect resilience in US equities, supported by solid earnings and AI tailwinds. NVIDIA's post-earnings pullback weighed on sentiment, but its strong guidance and AI-driven capex trends reinforce our confidence in AI as a structural growth driver, even amid short-term volatility. Without taking any single name views, while market sentiment remains sensitive to AI demand trends and tariff risks, we believe that earnings growth, AI investments, and economic stability should continue to support stocks.

So, while volatility may persist, we continue to see room for gains in equities, supported by resilient earnings, AI-driven tailwinds, and monetary policy easing. Despite trade uncertainty and economic concerns, inflation continues to moderate, Fed policy remains accommodative, and corporate earnings have been solid, reinforcing our view that the S&P 500 can reach 6,600 by year-end.