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US stocks fell ahead of the Federal Reserve interest rate decision due today, with the S&P 500 down 1.1% and the Nasdaq declining 1.7% on Tuesday, reversing gains made over the past two sessions. Since its all-time high a month ago, the S&P 500 has fallen 8.6% amid economic, trade, and geopolitical uncertainties.

Markets widely expect the Fed to hold rates steady today at 4.25-4.50%. Investors will be looking for insight into how top policymakers are viewing the outlook for the economy, including the 鈥渄ot plot,鈥� which shows how far and fast leading Fed officials expect rates to fall this year. In addition, Fed Chair Jerome Powell鈥檚 press conference will be key to understanding how the US central bank is evaluating the potential impact of President Trump鈥檚 trade policy on inflation and growth.

Market volatility can be expected if Powell fails to sufficiently reassure investors. But we continue to believe that solid fundamentals should support a resumption of the equity rally.

The Fed should be in a position to resume policy easing later this year. We continue to expect two 25-basis-point interest rate cuts later this year as inflation moderates further. Earlier this month, data confirmed the broader disinflationary trend with shelter costs continuing to ease, while the Fed鈥檚 Beige Book indicated that economic activity has risen only 鈥渟lightly鈥� since mid-January. With businesses and consumers becoming more cautious amid uncertainty over Trump鈥檚 policies, we think moderating economic growth will allow the US central bank to resume its cycle of rate reductions in the coming months.

A resilient US economy should support healthy corporate earnings. While we expect US growth to slow, fears that the world鈥檚 largest economy could be headed for recession look overdone. Industrial output in February rose more than expected, and US home construction rebounded strongly last month from a weak January as the weather improved. Retail sales data released earlier this week also suggest that underlying consumer demand remains resilient. While we now see a greater risk that highly aggressive tariffs and retaliatory measures could be in place long enough to weigh on the global economy, our base case remains that a wide range of selective tariffs and counteractions should not prevent the US economy from expanding at close to its 2% trend this year. Steady consumer spending, supported by a resilient labor market, should underpin healthy earnings growth of 8% for the S&P 500 in 2025.

Productivity gains and product innovation should continue to drive AI growth. NVIDIA CEO Jensen Huang on Tuesday unveiled the upcoming Blackwell Ultra chips that are slated to be shipped in the second half of this year as well as the company鈥檚 product roadmap for the years ahead. Without taking any single-name views, Huang鈥檚 update reinforces our belief that AI compute should continue to account for a significant share in AI spending in the coming years amid pent-up demand and strong product innovation. In addition, we see strong evidence of AI productivity gains and performance improvements that should continue to power the AI rally beyond the near term. Recent corporate filings from industry leaders showed strong productivity improvements measured by revenue per employee, while future AI chips are likely to be packed with more transistors and dies (chip components) to enhance their performance.

So, we continue to expect the S&P 500 to reach 6,600 by the end of the year supported by Fed easing, healthy economic and profit growth, as well as AI spending and adoption. We note, however, that the journey up is likely to be accompanied by increased volatility. Investors should consider buying the dip in quality AI stocks, and utilize structured strategies to manage downside risks in their equity exposure. We also retain our conviction about the long-term opportunities in stocks linked to the power and resources theme.