To The Moon

The market is heading into another important test. On Tuesday, the Nasdaq 100 ETF (QQQ) gained 1.27%, while the S&P 500 ETF (SPY) rose 0.56% ahead of the Federal Reserve’s interest-rate decision. Semiconductor stocks led the advance, with AMD jumping 5.45%, Broadcom gaining 4.00%, and Nvidia climbing 0.90%.

The rally suggests that investors are still willing to buy technology stocks despite concerns about elevated valuations and the direction of interest rates. However, one strong session does not necessarily mean the market has cleared its next hurdle.

The key question is whether the Fed can provide enough reassurance on inflation and future policy to support another leg higher in technology stocks.

1. A rate hold may not be enough

Markets largely expect the Fed to leave interest rates unchanged at 3.75%–4.00%. If that happens, the decision itself may have limited impact because investors have already priced in the expected outcome.

The bigger catalyst will be the Fed’s guidance on future rate cuts.

If policymakers signal that inflation is gradually moving toward their target and borrowing costs could ease in the coming months, growth stocks may benefit. Lower interest rates generally make future earnings more valuable today, which can support companies whose valuations depend heavily on long-term growth.

However, if the Fed signals that rates may need to remain elevated for longer, the reaction could be very different. Treasury yields could rise, financial conditions could tighten, and investors might become less willing to pay premium valuations for technology companies.

This is particularly important for AI stocks, where expectations for future growth are already high.

2. QQQ: Greater upside, but greater sensitivity

QQQ provides exposure to some of the largest technology and growth companies in the US market. Its concentration in major technology businesses makes it an attractive option for investors who expect AI investment, cloud computing and digital infrastructure spending to remain strong.

If the Fed adopts a more supportive tone, QQQ could benefit from both improving market sentiment and continued demand for growth stocks.

The risk is that a significant portion of its performance depends on a relatively concentrated group of large companies. If investors begin questioning AI spending returns or move away from expensive growth stocks, QQQ could experience sharper pullbacks than a more diversified index.

For investors bullish on technology, QQQ offers broad exposure to the sector without requiring them to select individual winners. However, it is not a low-risk alternative.

3. SPY: A more balanced way to stay invested

SPY tracks the S&P 500, providing exposure to companies across technology, healthcare, financials, consumer businesses, industrials and other sectors.

This broader diversification can be useful when the market outlook becomes uncertain.

If technology stocks weaken following a hawkish Fed announcement, other sectors may help cushion the impact, although diversification cannot eliminate market risk.

SPY can also benefit from AI growth because major technology companies represent a meaningful portion of the index. The difference is that investors are not relying exclusively on the semiconductor and technology rally to drive returns.

For investors who remain bullish on the US market but are less confident about short-term technology valuations, SPY offers a more balanced approach.

4. Semiconductor stocks: The strongest opportunity or the biggest risk?

AMD, Broadcom and Nvidia remain closely tied to the expansion of AI infrastructure.

AMD is competing for a larger share of the AI accelerator and data-centre computing market. Broadcom benefits from demand for networking infrastructure and custom AI chips, while Nvidia remains a major supplier of GPUs used to train and run AI models.

Their recent gains reflect continued investor interest in AI-related spending.

However, there is an important distinction between a growing industry and an attractively priced stock.

AI demand can continue expanding while individual shares still decline if their valuations already assume exceptionally strong future growth.

Investors also need to consider whether customers can sustain current spending levels, how quickly new infrastructure generates returns, and whether competition will put pressure on margins.

Semiconductor stocks may offer greater upside if earnings and guidance exceed expectations, but they also carry company-specific risks that are not present to the same extent in a diversified index.

5. What happens after the Fed decision?

Three scenarios are worth watching.

📈 Bullish scenario: The Fed sounds less hawkish than expected, Treasury yields ease, and strong AI earnings continue to support valuations. QQQ and leading semiconductor stocks could outperform.

⚖️ Neutral scenario: Rates remain unchanged and the Fed provides little new guidance. The market may return its attention to earnings, company guidance and evidence that AI investment is translating into sustainable profits.

📉 Bearish scenario: The Fed signals that inflation remains a concern and rates may stay elevated for longer. Bond yields could rise, putting pressure on growth-stock valuations and potentially triggering profit-taking in semiconductor stocks.

The market reaction will depend on how the announcement compares with existing expectations, not simply whether the Fed raises, cuts or holds rates.

My view

I would separate the decision into two questions: how much risk to take and where that risk should be concentrated.

For broad US market exposure, SPY offers a more diversified starting point. For investors seeking greater exposure to technology and AI, QQQ provides a more concentrated growth position. Semiconductor stocks may offer additional upside, but their valuations, earnings expectations and volatility deserve closer attention.

I would also avoid treating a dovish Fed message as an automatic buy signal. Lower rates can support valuations, but they cannot compensate indefinitely for disappointing earnings or excessive expectations.

The strongest long-term opportunities are likely to be companies that can turn AI investment into real revenue growth, sustainable margins and cash flow.

The bottom line: The Fed may set the tone for the next market move, but earnings will determine whether the AI rally has enough fundamental support to continue.

For discussion purposes only. This is not financial advice.