HSBC Remains Bullish on Equities After Sentiment Sell Signal Disappears

HSBC believes recent weakness across risk assets has largely run its course and says improving market sentiment continues to support additional gains for global equities.

Chief Multi-Asset Strategist Max Kettner said that despite a series of disruptive events over the past two months, equity markets have demonstrated impressive resilience.

Multiple Shocks Failed to Derail Global Markets

The bank highlighted a number of significant developments, including a $30 increase in oil prices after tensions escalated in the Middle East, a 40% decline in Asian memory stocks, sharp losses among momentum shares and a 50% retreat in SpaceX’s share price from its intraday high.

“And, yet, nothing has happened,” Kettner wrote, noting that global equity markets remain only about 1% below the record levels reached in early June.

Strong Earnings Offset Economic Concerns

HSBC argued that investors have become considerably more cautious on economic growth while continuing to underestimate corporate earnings.

The bank noted that 12-month forward earnings estimates for the S&P 500 have increased by another 5.5% over the past year, supported by a broad-based second-quarter earnings season.

It also pointed to more reasonable equity valuations, with the forward price-to-earnings ratio now roughly two turns below the 21.5 multiple seen before the Middle East conflict intensified.

Positive Positioning Remains Intact

HSBC believes higher bond yields have reduced the impact of rising oil prices on equities and suggested that a further reversal of “U.S. exceptionalism” could make lower yields supportive for stock markets.

The bank also said the recent decline in hyperscaler debt “masks lower issuance and strength elsewhere.”

HSBC continues to recommend a “max OW equities” allocation, while favoring high-yield debt and emerging-market credit over U.S. Treasuries, Japanese government bonds and oil.

The bank said the disappearance of its sentiment-based sell signal reinforces its expectation that global equities can continue moving higher.