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What happened?
The S&P 500 rose 2% on Thursday, extending its recent rebound, as strong gains in megacap technology stocks and increased expectations of Federal Reserve rate cuts supported sentiment. The tech-heavy Nasdaq advanced 2.7%. At the time of writing, S&P 500 futures pointed to further gains for the index on Friday, advancing 0.5%.

Expectations for a Fed rate cut increased after Cleveland Fed President Beth Hammack said the central bank could lower rates in June if the data is “convincing,” but emphasized that “patience will be essential” in assessing the economic outlook. Fed Governor Christopher Waller also said he’d support rate cuts in the event aggressive tariff levels hurt the jobs market.

As the first-quarter earnings season gathers momentum, strong results from major companies have helped boost sentiment and drive stocks higher. Of the S&P 500 companies that have reported so far, around 70% have beaten earnings estimates, with first-quarter earnings on track to grow by roughly 5% year over year.

Gold, which hit a record high above USD 3,500 per ounce earlier in the week, is trading around USD 3,350/oz at the time of writing.

While investor optimism this week has been buoyed by President Trump’s signals of a less confrontational approach to trade talks with Beijing, mixed messages persist. China’s Ministry of Commerce stated that no trade talks are currently taking place and called for the US to remove all “unilateral” tariffs.

The S&P 500 and Nasdaq have rallied over the past three sessions. However, both indexes have fallen over the course of April and are on track for a third consecutive monthly decline. With uncertainty around US tariff policy and the Fed’s next steps still in focus, markets are likely to remain sensitive to further developments.

What do we think?
Markets are now factoring in both a Trump and a Fed “put,” in line with our base case that tariffs will be reduced from current announced levels over the remainder of the year and that the Federal Reserve will cut interest rates further in 2025. However, with uncertainty still elevated around trade, the economy, and Fed policy, we expect volatility to remain elevated as well.

On trade, we believe the Trump administration’s change in its tariff stance in response to equity and bond market turbulence indicates some sensitivity to market stress, which points to the existence of a “Trump put” in some form. The recent CNBC All-America economic survey found that President Trump now has a net negative approval rating on the economy (43% approval, 55% disapproval) for the first time.

With many countries expressing a desire to negotiate with the US on tariff policy, and the Trump administration now somewhat pressured to demonstrate “success,” we expect a variety of deals or sector carveouts to materialize within the 90-day pause period. According to Treasury Secretary Scott Bessent, the US-South Korea trade discussions were “very successful,” and “technical terms” may be discussed as early as next week. Japanese Finance Minister Katsunobu Kato said specific currency levels or targets didn’t come up in his talks Thursday with Bessent, and the two sides agreed that foreign-exchange rates should be determined by the market. These developments followed the US making “significant progress” toward a bilateral trade deal with India.

Cleveland Fed President Hammack’s remarks on Thursday sharpened the market’s focus on monetary policy. While her comments raised the likelihood of further easing, she reiterated the Fed’s emphasis on patience. Nonetheless, we believe the central bank remains prepared to respond to signs of economic weakness, particularly in the labor market. Our base case is that the Fed will cut interest rates by 75-100 basis points this year. But in the very near term, the Fed’s policy flexibility appears to be more limited, as it has to balance growth concerns against the risk of a resurgence in inflation.

While tariffs will be a near-term overhang, it is important to see this in the context of strong longer-term corporate earnings potential. Google’s parent company, Alphabet, reinforced this momentum by reporting first-quarter profit and revenue that exceeded consensus estimates after the market close on Thursday. It also maintained its capex guidance of USD 75bn for this year, adding that it’s “investing in the long term” and “investing in innovation.” In recent years, the performance of the US technology sector has been a key driver of the US equity market. While we expect tariffs to contribute to earnings per share cuts of 3-5% for 2025, global tech earnings should still grow by a mid-teens percentage this year, in our view. We expect strong global AI capex spend to continue, growing by 60% in 2025 to reach USD 360bn and 33% in 2026 to reach USD 480bn.

How to invest
At times of elevated volatility and heightened uncertainty, we recommend the following strategies:

Look through volatility. For investors who were under-invested going into the sell-off or are willing to take on near-term risk for potential long-term reward.

• Phase into stocks. While volatility will likely persist, we view US equities as Attractive, with a year-end S&P 500 target of 5,800. Phasing into the market can be an effective way to position for medium- and longer-term upside while managing timing risks. Capital preservation strategies can be another way to manage near-term downside risks.
• Transformational Innovation Opportunities (TRIOs). We continue to see strong long-term potential in our TRIOs— Artificial intelligence, Longevity, and Power and resources. While companies exposed to each of these ideas have been caught up in near-term derisking, we expect structural trends to be the biggest drivers over the long term, and the recent sell-off provides a potential opportunity for investors to build structural exposure.

Manage volatility. For investors concerned about the near-term risks and looking to hedge portfolios against potential further downside.

• Gold. Gold has continued to serve as an effective hedge amid ongoing trade uncertainty. The precious metal has gained around 27% since the start of the year. We see further upside potential, with our base case targeting USD 3,500 per ounce in 2025. We continue to see support from investment demand, ongoing central bank diversification, and a volatile macro backdrop.
• Seek durable income. Recent developments have added a political risk premium to US Treasuries, reflected in a higher yield. However, we expect this to be a step change rather than an ongoing process. With yields now high, we believe US Treasuries will offer portfolio diversification benefits and should perform well in the event of a slowdown in US growth.

Take advantage of volatility. For investors unsure about the near term but looking to utilize high levels of volatility to earn additional portfolio income.

• Seek sell-off opportunities. We believe recent volatility has created select attractive opportunities at a single-stock and individual-market level, with various companies with good longer-term prospects now trading at more attractive valuations. In the US, we highlight 20 US companies across a range of sectors that are higher quality, have solid business models, and offer, in our view, good longer-term value (see our “Sell-off opportunities” list). In Europe, our “Six ways to invest in Europe” list focuses on defensive stocks that we believe can benefit from increased market volatility, as well as from likely higher European defense spending and fiscal stimulus.

For more, read our latest Monthly Letter: Managing exceptionalism