HSBC expects third-quarter corporate results to provide a potential catalyst for global equities, with improving earnings guidance and continued demand for artificial intelligence computing infrastructure supporting its market outlook.
In a Tuesday research note, Alastair Pinder, the bank’s head of emerging market and global equity strategy, said recent bond market volatility had not materially altered HSBC’s positive assessment of equities.
The bank nevertheless acknowledged that higher interest rates and elevated volatility among individual stocks remain relevant risks for investors.
S&P 500 Earnings Multiples Have Fallen 16.5%
HSBC reported that the S&P 500’s forward price-to-earnings ratio has declined 16.5% since late 2025, despite the index approaching record highs.
The reduction in valuation multiples has affected a substantial proportion of the index, with 27% of constituents experiencing declines exceeding 20% this year.
The bank estimates that an additional 50-basis-point rise in the US 10-year Treasury yield would result in a further 4.3% reduction in the S&P 500’s forward earnings multiple.
HSBC also highlighted elevated volatility at the individual stock level.
Average three-month implied volatility for S&P 500 companies is currently at the 85th percentile of its historical distribution, while the VIX stands at the 35th percentile.
The difference suggests that broader index volatility measures do not fully reflect the price fluctuations anticipated for individual companies.
Earnings Announcements Have Coincided With Market Gains
HSBC identified corporate reporting periods as an important contributor to recent equity market performance.
Since 2025, the S&P 500 has gained an average of 4% during earnings reporting windows, compared with approximately unchanged returns outside those periods.
The bank expects another reporting season characterised by companies exceeding analysts’ forecasts and raising earnings guidance.
HSBC noted that the pace of improvement in corporate guidance is the fastest recorded since 2021.
It also expects $64 billion in customs refunds to provide support for corporate margins.
These developments form part of the bank’s expectation that earnings growth will continue to influence equity market performance.
Long-Term Fixed-Rate Borrowing Limits Interest Cost Exposure
Although HSBC expects higher bond yields to affect equity valuations, it anticipates a smaller direct impact on corporate earnings.
The bank estimates that approximately 80% of outstanding S&P 500 corporate debt is long-term and carries fixed interest rates.
As a result, changes in current market borrowing costs do not immediately affect interest payments on much of the existing debt.
HSBC therefore expects the effect of rising rates on corporate profitability to remain limited relative to their potential influence on valuation multiples.
AI Inference Demand and GPU Pricing Support Technology Outlook
HSBC continues to identify artificial intelligence as a source of potential earnings growth.
The bank pointed to increasing demand for AI inference workloads and stable GPU rental pricing as evidence of ongoing demand for computing resources.
Pinder also cited further signs that AI-related services are generating revenue, supporting HSBC’s expectations for companies involved in providing computing infrastructure.
The bank favours hyperscale cloud providers as the clearest near-term beneficiaries of additional computing demand.
Its assessment reflects expectations that growing AI usage will continue to require substantial processing capacity.
HSBC Retains Constructive Global Equity Position
HSBC’s market outlook reflects expectations that earnings growth and AI-related demand could offset some of the pressure on equity valuations from higher Treasury yields.
The bank noted that forward earnings multiples have already declined and that volatility remains elevated across individual S&P 500 stocks.
Nevertheless, improving corporate guidance, expected customs refunds and demand for AI computing infrastructure underpin its positive assessment of global equities.
HSBC expects third-quarter results to provide further information on corporate profitability and the extent to which AI investment is translating into revenue growth.
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