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Downgrading US equities after the market rebound
The S&P 500 ended the week 5.3% higher, taking its gains since a low point on 8 April to 19.8%, as investor fears over a trade war between the US and its major partners receded. Notably, investors have been encouraged by signs of reconciliation between the US and China, marked by the recent decision to lower tariffs for 90 days while talks on a permanent deal continue.

The pace and the scale of the retreat from tariffs has been encouraging and in line with our base case. But while we believe US stocks remain well supported, we now favor a Neutral stance on the market—downgrading it from the Attractive recommendation we implemented on 10 April when pessimism had become excessive, in our view. The outlook now is more balanced, in our view. Markets are already pricing plenty of good news, and the S&P is trading around 5% above the levels seen prior to US President Trump's 2 April "Liberation Day" announcement on higher tariffs. Investors will likely soon begin to focus on whether this temporary fix can evolve into a lasting agreement and challenges in forging a durable deal could lead to bouts of volatility.

Takeaway: We downgraded US equities to Neutral from Attractive following the recent rally. It is important to note that this is not a bearish view, nor a call to sell equities, and we recommend that investors maintain a full strategic allocation to US stocks.

Risks remain despite a pause in the trade war
The S&P 500 index edged back into positive territory for 2025 last week. The revival has largely reflected confidence that the most acute phase of the trade conflict is over.

But economic and diplomatic risks remain. The US effective tariff rate remains significantly higher than it was at the start of the year. After the volatility from the sudden shift in tariffs, it is easy to lose sight of the fact that the US effective tariff rate—at around 15%—is now six times higher than the 2.5% rate that prevailed in January before US President Donald Trump returned to the White House. This is assuming that the rolled-back tariffs during the 90-day pause can be maintained beyond the deadline.

As the Trump administration has indicated that the 10% baseline tariff is unlikely to be negotiated lower, these higher tariffs could slow the US economy and push up prices. While a benign April consumer price index release came as a relief for markets this week, the inflationary effects of the tariffs may become more apparent in the coming months. Many companies have built up inventories ahead of the policy changes earlier this year and have yet to pass on higher costs to consumers. As these stockpiles are drawn down, upward pressure on prices could resurface. Our base case is that one-off price increases arising from higher tariffs should not lead to more sustained inflation, but the Federal Reserve has cautioned about the risk of stagflation.Takeaway: We think tech stocks should continue to recover, supported by strong earnings growth of 12% or higher in 2025 if tariff headlines continue to improve. We favor diversified exposure across leading internet and software companies and names along the AI semiconductor supply chain globally.

Takeaway: Phasing into the market can be an effective way for underallocated investors to position for medium- and longer-term upside in US equities, while capital preservation strategies can help manage near-term downside risks. For more thoughts on the outlook for trade, read our latest “Global risk radar: A pause in the trade war.”

AI momentum builds on Gulf deals and solid earnings
Global tech stocks extended their rally last week as several high-profile artificial intelligence (AI) deals were announced during US President Donald Trump’s tour of the Gulf states. The tech-heavy Nasdaq is now up 25% since its post-“Liberation Day” low.

As part of an economic partnership with Saudi Arabia that could see the kingdom invest USD 600bn in US companies, NVIDIA will supply advanced AI chips to their new AI venture Humain. Alphabet’s Google, Oracle, and AMD will invest USD 80bn in transformative technologies across both countries. Trump’s Gulf tour delivered several diplomatic and economic deals: including a multi-billion-dollar investment pledge from Qatar.

Uncertainty around the sector persists. The semiconductor industry still faces potential tariffs, and increased costs from supply chain relocations could pose challenges. Details of Trump’s overhaul of the AI diffusion rule remain to be seen.

But despite these headwinds, we believe the risk-reward in AI remains attractive. Global tech valuations are still reasonable, in our view, and the breadth of recent deals points to growing global investment. We estimate sovereign and enterprise AI capex to grow 60% this year to USD 360bn and another 33% in 2026 to USD 480bn. Moreover, US Census data suggests AI adoption could surpass 10% by year-end, a threshold ecommerce took 24 years to cross. And China’s drive for AI self-sufficiency also supports long-term demand. We estimate China’s AI compute localization could rise from 33% in 2024 to 90% by 2029—a USD 81bn opportunity.

Takeaway: We think tech stocks should continue to recover, supported by strong earnings growth of 12% or higher in 2025 if tariff headlines continue to improve. We favor diversified exposure across leading internet and software companies and names along the AI semiconductor supply chain globally.