From the studio

Video:Sundeep Gantori on AI adoption's steady growth (3 min)
Podcast: Investors Club: Can the China AI rally continue? (5 min)
Podcast: (17 min)

Thought of the day

US equities fell for a second day on Wednesday as markets reassess the potential pace of Federal Reserve easing following solid economic data and higher oil prices. Both the S&P 500 and the Nasdaq were down 0.3%.

New home sales in the country jumped to an annualized rate of 800,000 in August, marking the fastest pace since early 2022, while Brent crude oil rose to the highest level since 1 August. These have led to renewed concerns over price pressures, with Federal Reserve Chair Jerome Powell reiterating risks to inflation earlier this week. Separately, the US Commerce Department said it had opened new national security investigations earlier this month into the import of a range of medical, robotics, and industrial goods, which could later be used as a basis for tariffs.

With markets having recently focused on the implications of a lower-rate environment, any doubt over the Fed’s future easing path could stoke volatility. But we continue to believe that positive market fundamentals will likely drive equities higher in the coming months.

The Fed is likely to lower rates further, creating a favorable backdrop for stocks. While Powell made clear that policymakers remain mindful of inflation risks despite the 25-basis-point rate reduction last week, we believe the Fed overall will prioritize labor market weakness over what is still likely to be a temporary increase in inflation. Powell has said he is expecting an only one-off price increase from tariffs, and both market and survey measures of longer-run inflation expectations remain at levels consistent with the Fed’s 2% target. With the federal funds rate still above the average estimate of “neutral,” we think the Fed has room to cut more before running the risk of stoking higher inflation. We expect 75 basis points of additional rate cuts between now and the end of the first quarter of 2026.

Solid earnings growth and healthy consumption are supportive of markets. Recent corporate results showed that that earnings strength was broad-based, with nearly 80% of S&P 500 companies beating sales estimates. With an estimated earnings per share growth of 8% this year and 7.5% in 2026, we expect solid corporate profits to underpin further equity gains. In addition, corporate and aggregate household balance sheets are in good shape, while the administration’s focus on deregulation should also be generally supportive for stocks.

Transformational innovation like artificial intelligence (AI) should continue to drive market performance for the long term. The latest US Census Bureau survey tracking AI adoption across more than a million firms in the US showed a steady sequential improvement in the AI adoption rate, and we think the industry is poised to enter the next phase of growth where penetration accelerates. This, in our view, is underpinned by strong and rising global capex, continued innovation in reasoning models, a growing AI ecosystem, and an expanding scope for monetization. In the context of the USD 100tr global economy, we estimate that the annual AI revenue opportunity could reach USD 1.5tr.

So, we expect the S&P 500 to reach 6,800 by June 2026, while in a bull case, we believe the index could reach 7,500. Investors looking to manage timing risks should consider phasing in and using market dips to add exposure to preferred areas, including our AI, Power and resources, and Longevity themes.