Despite Brent crude skyrocketing 40% year-to-date, a severe rout in global semiconductor stocks, and persistent geopolitical tensions in the Middle East, global equities are sitting less than 1% below their all-time highs. Amid the market noise and skepticism, strategists at HSBC Holdings are firmly maintaining their bullish stance, explicitly calling on investors to boost equity allocations to “maximum overweight” and laying out five core reasons why US stocks and global risk assets still have strong momentum to push higher.
The HSBC strategy team led by Max Kettner released a research note this week arguing that the market has remained remarkably resilient in the face of a series of shocks: Brent crude has surged 40% year-to-date, South Korea’s Kospi index has tumbled more than 30% this month, the Philadelphia Semiconductor Index (SOX) has dropped 16% over the same period, and Elon Musk’s SpaceX has seen its share price retreat more than 20% since listing. Yet global equities remain just a stone’s throw from the record highs set in early June.
“Nothing seems to be able to truly rattle this market,” Kettner’s team wrote in the note. Moreover, credit markets are not flashing any obvious risk signals either. European high-yield bond spreads continue to narrow, while emerging market and US dollar high-yield spreads remain broadly flat, further confirming that overall market risk appetite remains solid.
In HSBC’s view, the market’s surprising resilience precisely demonstrates that it has already priced in most of the negatives, while positive catalysts such as improving earnings and falling interest rates still lie ahead. The bank maintains its “maximum overweight” rating on equities and elaborated on five aspects of its analytical logic.
First, market expectations for global economic growth have been revised down significantly from the start of the year, meaning future data is more likely to deliver upside surprises rather than new disappointments. HSBC strategists believe that current growth forecasts are well below levels seen at the beginning of the year, making it highly probable that growth will surprise to the upside going forward, reversing the current downward revision trend.
Second, investors were previously too pessimistic about second-quarter corporate earnings, but this earnings season is once again delivering widespread beats. According to Bloomberg Intelligence data, 85.5% of S&P 500 constituent companies have now reported results exceeding expectations, the highest proportion in five years. S&P 500 earnings are expected to grow nearly 27% year-on-year, markedly higher than the 23.2% forecast at the start of earnings season. European corporate earnings growth has also climbed to a three-year high, potentially reaching 11.7%.
“Investors have once again been too pessimistic about corporate earnings,” Kettner said. He specifically noted that forward earnings per share estimates for the S&P 500 continue to be revised upward, and this earnings season is shaping up to be “yet another broadly strong quarter.” The pace of upward earnings estimate revisions has even outpaced share price gains, causing equity valuations to decline over the past few months. Over the past year, earnings estimate growth has been double the pace of the benchmark index’s gains, with the S&P 500’s 12-month forward price-to-earnings ratio falling from a peak of around 23 times last October to roughly 19.5 times currently.
Third, from a valuation perspective, US equities—particularly some large-cap technology stocks—are currently trading at levels even lower than at the onset of the US-Iran conflict, providing a higher margin of safety for subsequent upside.
Fourth, the sharp rise in US Treasury yields paradoxically implies room for future declines. The 2-year US Treasury yield currently stands at 4.316%, nearly 1 percentage point higher than when the Middle East conflict erupted. HSBC expects that declining bond yields over the coming months will become an important supportive factor for equities. However, the team added that the timing is not yet ripe, which is why they maintain a “tactical underweight” on US Treasuries for now. HSBC strategists further analyzed that US long-end real interest rates have risen to multi-decade highs, which is precisely why equities have barely reacted substantively to the oil price surge. If the bank’s assessment that “US exceptionalism” is gradually fading ultimately proves correct, the support from falling yields for equities could become even more pronounced.
Fifth, while memory chip stocks and hyperscale cloud computing companies have recently faced concentrated selling, the capital has not left the market but rather flowed into other sectors, driving ongoing internal market rotation. HSBC expects this capital reallocation process to continue in the coming weeks, with the sector rotation trend likely to persist.
Since 2023, Kettner has been one of Wall Street’s most steadfast bulls. At that time, against a backdrop of high inflation and aggressive rate hikes, most strategists were cautious on equities, while Kettner insisted on staying bullish. The S&P 500 subsequently gained 20% for the full year, vindicating his call. For most of the past three and a half years, Kettner has remained bullish on the market, during which the S&P 500 has cumulatively rallied roughly 80%.
However, Kettner is not complacent about past success. In an interview with Bloomberg earlier this month, he said: “Even though our calls have been broadly correct over the past few years, we must constantly verify whether those judgments still hold.”
Today, global equities sit roughly 1% below record highs. In HSBC’s view, the market has proven it can withstand a barrage of negatives including surging oil prices, escalating geopolitical conflict, and a tech stock correction. The bank’s strategy team believes the recent pullback has been sufficient to clear sell signals triggered by market sentiment and positioning. What remains not fully priced in, rather, is the potential for a new wave of upside momentum driven by sustained corporate earnings beats and declining bond yields. HSBC also cited upward revisions to US GDP forecasts, a strong start to the second-quarter earnings season, and declining valuations as positive factors supporting risk assets.
Market commentary suggests some strategists estimate the S&P 500 could finish the year with a 20% gain. Despite violent swings in the oil market and tech stocks, global equities have once again demonstrated formidable resilience. HSBC believes now is precisely the time to go “all in” on equities.