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What happened?
US equity futures pointed to a strong start to trading on Thursday, after a federal court blocked President Donald Trump’s “reciprocal” tariffs from going into effect, while NVIDIA’s earnings beat market expectations. At the time of writing, S&P 500 futures were up 1.4% and the NASDAQ is up 1.9%. Major markets in Asia also moved higher, with Japan's Topix index up 1.5% and the Hang Seng rising 1.3%. Yet in Europe, the Stoxx 600 index is up by just 0.3% at the time of writing.

The US Court of International Trade on Wednesday issued a unanimous decision that requires an immediate injunction against all tariffs levied under the International Emergency Economic Powers Act (IEEPA) of 1977. It ruled that the legal basis does not give Trump the power to unilaterally implement the levies.

This means that the initial “trafficking” tariffs on China, Canada, and Mexico, the worldwide 10% baseline tariffs, and the additional “reciprocal” tariffs on countries running goods trade surpluses with the US could end in the next 10 days unless the White House wins on appeal or is awarded an “emergency stay,” which pauses the enforcement of the ruling. The Trump administration has immediately filed a notice of appeal.

Tariffs on autos, auto parts, steel, and aluminum, however, remain in effect as they were not a subject of the legal challenge. These levies were applied under Section 232 of the Trade Expansion Act of 1962, which allows the US government to restrict imports if the goods are found to threaten national security.

Earlier on Wednesday, without any single-security views, NVIDIA reported solid results for the quarter ended April, with both revenue and profits exceeding consensus estimates. While its sales forecast for the July quarter included a hit of roughly USD 8bn due to the export restrictions of its H20 model to China, the chipmaker still anticipates growth in the three-month period. CEO Jensen Huang noted the “incredibly strong” global demand for AI infrastructure, adding that “demand for AI computing will accelerate.”

What do we think?

The ruling presents a roadblock to the administration and will constrain Trump’s use of tariffs unless the administration wins an appeal. But even if higher courts uphold the injunction, tariffs are unlikely to disappear completely.

Tariffs appear to remain an important focus for the US administration, and as we have noted previously, the Trump administration has been laying the groundwork for product specific tariffs following Section 232 trade investigations into strategic industries, including pharmaceuticals, critical minerals, lumber, copper, and semiconductors.

These tariffs are likely to be more durable with fewer carve-outs and exemptions, given that they’re focused on strategic sectors. In light of the fact that they also have a sturdier legal basis (tariffs levied under Section 232 are grounded in Commerce Department investigations), they could become much more important to the administration’s trade strategy, following the court decision.

The Trump administration could also use other sections of the Trade Act of 1974 to rebuild some of its tariff agenda. For example, Sections 201 and 301 could be used to levy import duties or implement quotas, although they are limited to specific products or industries and require lengthy investigations. Section 122 of the Trade Act of 1974 also gives the president authority to address bilateral trade deficits with tariffs,albeit the levy is capped at 15% and can only be applied for 150 days without an act of Congress.

Overall, we believe the court’s decision makes the imposition of tariffs more complex and may harm Washington’s negotiating position in trade talks, but the Trump administration is still able to impose significant and wide-ranging tariffs over the longer-term through other means.

Without taking a view on individual securities, NVIDIA's results bolstered our conviction that AI innovation generally will remain a key driver of long-term equity performance for the tech sector overall. That said, the tech sector continues to face high levels of uncertainty over the trade outlook and the potential for additional restrictions on exports.

How to invest?
We expect further market volatility ahead as headlines on both trade and fiscal policy emerge in the weeks and months ahead. We still expect US equities to rise over the next 12 months, but near-term gains this year are likely to be more limited. We believe the S&P 500 will end the year at 6,000, and reach 6,400 by June of next year.

Against this backdrop, we advise investors to:

Phase into equities: After a strong rally from recent lows, near-term gains may be more limited and trade and fiscal uncertainty are likely to drive volatility. But longer term, we see further potential for stocks to rally amid structural earnings growth, Fed rate cuts, and greater policy stability. Investors should consider using the coming months to progressively address strategic portfolio gaps and position themselves for further gains in 2026 and beyond. In our view, AI innovation will remain a key driver of long-term equity performance.

Seek durable income: High grade and investment grade bonds offer appealing risk-reward, in our view. We believe yields on quality bonds in most major markets are attractive, and we anticipate the continuing global rate-cutting cycle will contribute to investor inflows. We also continue to see government bonds as a credible alternative to cash for investors looking to lock in currently elevated yields. Investment grade bonds are also appealing from a portfolio risk management perspective.

Sell dollar rallies: We don’t expect the recent revival in the dollar to persist over the long term, as diversification continues and as the focus increases on rising fiscal deficits. We recently downgraded our view on the US dollar to Unattractive. We like reducing excess US dollar cash by diversifying into other currencies such as the yen, euro, British pound, and Australian dollar. International investors should also review their strategic currency allocations and consider hedging US dollar exposure in US assets back into their home currencies.

Navigate political risks: We expect gold to remain a valuable long-term portfolio diversifier, supported by persistent geopolitical risks, ongoing central bank demand, and our view that real interest rates will decline as the US dollar weakens. We maintain our USD 3,500/oz target versus USD 3,297 at the time of writing. While gold may consolidate after its recent gains, price setbacks can be used to build exposure. Capital preservation strategies can also potentially help retain gains and diversify portfolios. For investors looking to manage political risks, we recommend a mid-single-digit portfolio allocation to gold, alongside alternatives like hedge funds and capital preservation strategies on equities for more risk-tolerant investors.

What to watch: 30 May 2025

• The April personal consumption expenditures index - the Federal Reserve's favorite inflation gauge
• Various Fed and ECB speakers
• German May consumer price inflation