Tariffs Won't Derail Market: AI Optimism, Fed Rate Cuts Fuel Historic Highs

Despite President Trump's tariff policies, the S&P 500 and Nasdaq Composite indices remain near historic highs due to optimism around AI trades and expectations of a Federal Reserve rate cut in September. Strategists downplay long-term risks to the stock market, citing stable effective U.S. tariff rates and strong earnings performances from major tech stocks. Bloomberg reports that 82% of companies have surpassed earnings expectations this quarter, further fueling AI-driven optimism.

Despite President Trump's ongoing tariff policies, the S&P 500 and Nasdaq Composite indices have maintained their near-record highs, driven by optimism surrounding the AI trade and expectations of a Federal Reserve rate cut in September. Analysts and strategists downplay long-term risks to the stock market, citing stable effective U.S. tariff rates and robust earnings performances from major tech stocks.

Gargi Chaudhuri, BlackRock's chief investment and portfolio strategist for the Americas region, recently commented on the resilience of the market. She stated that while August could be a volatile month, any pullbacks would likely be short-lived. Chaudhuri emphasized that investors might consider adding short-term, fixed-income investments to their portfolios for diversification [1].

Even with Trump's tariff deadline looming, strategists remain optimistic about the long-term impact on equities. Ulrike Hoffmann-Burchardi, global head of equities at UBS Global Wealth Management, expects the U.S. effective tariff rate to settle around 15%, enough to weigh on growth and lift inflation but not enough to derail the economy or the equity rally [1].

The AI trade has been a significant driver of market optimism. Data analytics firm Palantir (PLTR) saw its market cap balloon past $420 billion after posting strong revenue and contract growth. Bullish sentiment around AI is also bolstered by robust quarterly results from tech giants like Microsoft (MSFT), Meta (META), and Alphabet (GOOGL, GOOG) [1].

Nvidia (NVDA), a key player in AI chip manufacturing, has seen its stock appreciate by 10.16% over the past month, outperforming the Computer and Technology sector and the S&P 500 [2]. The company's upcoming earnings release on August 27, 2025, is expected to be of great interest to investors, with projected earnings per share (EPS) of $1, reflecting a 47.06% increase from the same quarter last year [2].

The Federal Reserve's recent jobs report, which showed weaker-than-expected job growth and upward revisions in unemployment, has strengthened the case for a rate cut. Michelle Bowman, a top Fed official, expressed her belief that the Fed should cut interest rates three times this year to boost the economy. Bowman also noted that tariffs are not expected to present a persistent shock to inflation, suggesting that inflation is moving closer to the Fed's 2% target [3].

In response to the weak jobs data, three Fed officials have signaled potential rate cuts at the September meeting. They cited downward revisions in job numbers and warned of economic slowdown risks, proposing two rate cuts by late 2025 [4].

In summary, the stock market's resilience is driven by AI trade optimism and expectations of a Federal Reserve rate cut. Despite Trump's tariff policies, strong earnings performances and stable tariff rates have bolstered investor confidence.

References:
[1] https://finance.yahoo.com/news/stock-market-pullbacks-will-be-short-lived-wall-street-sees-ai-rate-cut-optimism-fueling-rally-133057446.html
[2] https://finance.yahoo.com/news/nvidia-nvda-laps-stock-market-214502725.html
[3] https://abcnews.go.com/Business/wireStory/top-federal-reserve-official-dour-jobs-data-backs-124512442
[4] https://www.ainvest.com/news/federal-reserve-officials-signal-rate-cut-labor-market-weakness-2508/