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Video:Transformational innovation opportunities (TRIOs): AI, power, and resources (1:52)

US President Donald Trump on Tuesday said 1 February is the date his administration is looking at to levy a 10% punitive duty on Chinese imports due to the flow of fentanyl from the country. He added that the European Union is 鈥済oing to be in for tariffs鈥� given the region鈥檚 USD 350bn trade surplus with the US. The latest threats came after Trump said on his first day of taking office that he intended to hit Canada and Mexico with 25% tariffs over fentanyl and immigration issues starting next month.

Chinese stocks came under pressure on Wednesday following the news, with the CSI 300 down 0.9% and the Hang Seng Index falling 1.6% amid investor concerns over further tariff announcements. However, S&P 500 futures are up 0.4%, extending the 0.9% gain on Tuesday that brought the stock benchmark above 6,000 for the first time in more than three weeks.

We continue to expect near-term volatility as markets react to incoming Trump headlines, and see negative impact on targeted regions if the tariffs are followed through. But we also believe US equities have room to grind higher as growth momentum continues.

Ongoing investment in artificial intelligence (AI) should continue to boost growth in the coming years. Along with the tariff plans against China and the EU, Trump on Tuesday also announced a private sector investment of up to USD 500bn to fund AI infrastructure, led by a joint venture between OpenAI, SoftBank, and Oracle called Stargate. Softbank鈥檚 Masayoshi Son said the venture will deploy USD 100bn 鈥渋mmediately,鈥� and Oracle Chairman Larry Ellison said the first of the project鈥檚 data centers are already under construction in Texas. We view the latest announcement as another positive catalyst to the AI growth story. Full details of the joint venture remain to be seen, but this adds to the ongoing strong commitment to the technology, underpinning some recent bullish revenue guidance provided by several chipmakers.

The current earnings season should set a positive tone to corporate profits. Several big tech companies are scheduled to release their fourth-quarter results next week, and we think further upward revisions in their capital spending are likely. We also expect a narrowing gap between AI revenue and capex to drive big tech鈥檚 25% earnings growth for the December 2024 quarter. More broadly, we anticipate 7-9% earnings growth for the S&P 500 for the three months to December, supported by resilient economic growth. For 2025, we forecast a healthy 9% earnings growth to drive the S&P 500 to 6,600 by the end of the year.

The US economy is expanding while the Federal Reserve is easing. The yield on the 10-year US Treasury has fallen over 20 basis points since inflation data last week came out tamer than expected. In our base case, Trump鈥檚 tariff measures should not prevent inflation from moderating further. We therefore expect the 10-year yields to come down toward 4% this year as the Federal Reserve reduces policy rates by another 50 basis points. Historically, Fed rate cuts in non-recessionary periods have been favorable for equities overall.

So, while we continue to watch the new administration鈥檚 next moves closely, investor should not lose sight of the fundamentals that remain favorable for US equities. Without taking any single-name views, we continue to like technology, utilities, and financials, and see value in utilizing structured strategies to navigate near-term volatility.