Author: Fiona Craig

HSBC strategist Max Kettner remains firmly bullish on global risk assets, arguing that investors are premature in calling for a “buy the rumor, sell the fact” reaction to easing Middle East tensions.

Kettner said HSBC’s sentiment and positioning models continue to support equities and are “not sending a sell signal yet.”

“Most notably, we think systematic strategies have some further room to buy. So any potential further supportive news flow from the Middle East may well lift risk assets and lead to a more broad-based equity rally again,” he wrote.

He added that systematic investors still appear under-positioned, limiting the market impact of potential negative headlines.

HSBC therefore continues to maintain its strongest overweight allocation to global equities, particularly in U.S. and Asian markets, alongside sizable overweight exposure to emerging-market local debt and high-yield credit.

Meanwhile, the bank remains most underweight U.S. Treasuries relative to European sovereign debt.

Kettner pointed to robust corporate earnings as a major driver behind the bullish stance. Excluding technology companies, S&P 500 first-quarter net income rose 11% sequentially, while earnings surprises reached their strongest level since the post-pandemic reopening period.

Notably, U.S. technology companies avoided any below-consensus EPS results during the quarter.

HSBC also highlighted that consensus forecasts for 2026 S&P 500 earnings continue moving higher rather than following the normal pattern of downward revisions.

The bank added that U.S. consumption trends still suggest economic momentum is improving, supported by healthy household balance sheets, strong employment conditions and tax refund flows.

While some softening has appeared in credit card spending data, HSBC believes much of it reflects distorted comparisons caused by tariff-related spending pull-forwards last year.

In contrast, Europe’s outlook appears weaker, with business confidence indicators such as Germany’s ifo survey signaling softer activity.

As a result, HSBC continues favoring European bonds over U.S. Treasuries, prefers U.S. consumer discretionary equities over European peers, and remains constructive on European financial stocks.

Wolfe Research has cautioned that central banks around the world may risk making policy mistakes if they react too aggressively to the recent surge in oil prices caused by the Iran conflict.

The firm noted that while U.S. equity markets have remained relatively resilient, long-term bond yields and interest-rate expectations in futures markets have closely tracked the move higher in oil prices since tensions escalated in the Middle East.

Europe and Asia Face Greater Economic Pressure

According to Wolfe Research, the muted response in U.S. stocks partly reflects America’s stronger energy independence compared with Europe and Asia, both of which remain heavily dependent on imported fuel.

The report said rising energy costs are expected to weigh more heavily on economic growth outside the United States, particularly in regions where imported oil and gas play a larger role in the economy.

Global Rate Policy May Drift Away From the Fed

The research group pointed out that several major central banks have recently held policy meetings, increasing the likelihood that monetary policy paths outside the U.S. could begin to diverge from those of the Federal Reserve.

Wolfe suggested that some overseas central banks may move toward tighter policy even if the Fed keeps rates steady or eventually cuts them.

Bank of Japan Decision Highlights Internal Tensions

The latest meeting of the Bank of Japan drew particular attention after policymakers voted 6-3 in favor of leaving interest rates unchanged.

Wolfe Research said this represented the widest division among policymakers since Governor Kazuo Ueda took office in 2023, suggesting that pressure for additional tightening may be building inside the central bank.

Stronger Yen Could Spark Market Disruption

The firm warned that if the Bank of Japan raises rates more aggressively than markets currently expect — futures markets are pricing in roughly two additional hikes — the resulting strength in the yen versus the dollar could trigger another unwinding of carry trades and increase volatility across global financial markets.

Two Key Risks Could Threaten the Market Rally

Wolfe Research identified two major threats to the ongoing market advance: central banks tightening policy in response to what may ultimately prove to be temporary energy-driven inflation, and the risk of a disorderly carry trade unwind linked to sharp currency movements.

Artificial intelligence-related shares have been responsible for more than 80% of the S&P 500’s gains in 2026, raising concerns among some investors about whether the rally has become too concentrated. Strategists at Jefferies, however, argue that the strength of the move remains supported by fundamentals rather than excessive speculation.

The firm’s quantitative strategy team said returns across its AI stock basket continue to be driven largely by earnings growth instead of expanding valuation multiples, which they believe makes the trend “sustainable.” Without AI-linked companies, the S&P 500 would have gained only around 2% so far this year.

Strong Earnings Momentum Continues Across AI Sector

Jefferies noted that forward earnings forecasts for its AI basket in 2026 have risen by more than 30% since the middle of 2025. Analyst consensus currently points to a compound annual earnings-per-share growth rate of 38.5% for 2026 through 2027, far above the 11.9% projected for sectors outside artificial intelligence.

Even with that growth profile, the AI basket trades at roughly 25 times forward earnings, below its historical one-standard-deviation level. Its PEG ratio also stands at just 0.6 times.

“AI is the cheapest sector to own in the U.S.,” on a PEG basis, the team led by Desh Peramunetilleke wrote.

Not All AI Segments Are Performing Equally

Performance across the AI landscape has varied considerably this year, according to Jefferies. Stocks tied to AI servers, optical technologies and memory products have generated the strongest returns, while hyperscalers and semiconductor designers have lagged behind other AI-related groups.

The analysts said memory and compute-focused companies currently appear the most attractive from a valuation standpoint based on PEG ratios. Meanwhile, semiconductor equipment makers and chip design companies are viewed as comparatively expensive.

Earnings Season Offers Additional Confidence

Jefferies said the latest earnings season further reinforced the positive case for AI-related equities. Approximately 86% of companies exceeded profit expectations, marking the highest earnings beat rate seen since the post-pandemic period and improving from 75% in the previous quarter. Revenue surprises also strengthened, with 82% of companies beating forecasts.

Despite those strong numbers, the firm noted that positive earnings surprises did not consistently translate into outperformance across the broader market. Outside AI and a limited number of sectors, companies generally saw muted share-price reactions following earnings beats, while firms missing expectations faced sharp declines, reflecting elevated market expectations.

“On a more positive note, beats were followed by upgrades, suggesting earnings risks are low despite the geopolitical uncertainty,” the strategists added.

Geopolitical Risks Remain a Key Concern

Analysis conducted through the AlphaSense platform covering roughly 330 earnings calls showed that management teams remain broadly optimistic, with positive sentiment reaching 95%. Analyst sentiment also improved, with 58% of earnings calls reflecting a positive tone compared with 48% in the fourth quarter of 2025.

At the same time, companies increasingly pointed to geopolitical tensions involving the United States and Iran as a growing risk factor. Around 44% of businesses referenced the conflict negatively, highlighting concerns around supply chain disruption and softer consumer demand.

Broader Market Growth Remains Subdued Outside AI

Jefferies also highlighted the growing divide between AI-driven sectors and the rest of the market. Aggregate earnings revisions for the S&P 500 over the past three months total roughly 6%, but fall to just 0.3% once AI and commodity-related sectors are removed from the calculation.

Oil prices climbed roughly 2% after U.S. President Donald Trump said Chinese President Xi Jinping agreed that Iran should not be allowed to obtain nuclear weapons, while traders continued monitoring risks surrounding shipping activity near the Strait of Hormuz.

Brent crude futures rose $1.77, or 1.67%, to $107.49 a barrel by 0642 GMT after touching an intraday peak of $107.99 earlier in the session.

U.S. West Texas Intermediate crude futures advanced $2.13, or 2.11%, to $103.30 a barrel.

For the week, Brent has gained close to 6%, while WTI has climbed more than 7%, supported by uncertainty surrounding the unstable ceasefire tied to the Iran conflict.

Trump and Xi Discuss Iran and Hormuz

Trump said he was running out of patience with Iran and added that both he and Xi agreed Tehran must not acquire nuclear weapons and should reopen the Strait of Hormuz.

Xi did not publicly discuss his talks with Trump concerning Iran, though China’s foreign ministry later released a statement.

“This conflict, which should never have happened, has no reason to continue,” the ministry said.

“With the Beijing summit not delivering any breakthrough on Iran, market focus is back on the deadlock and a blockaded Strait, with a tail risk of renewed military escalation,” said Vandana Hari, founder of Vanda Insights.

Shipping Risks Keep Markets on Edge

Trump also said China was interested in purchasing oil from the United States, one of several developments markets had been watching for from the summit.

Shipping risks around Hormuz continued to draw attention after reports that Iranian personnel seized a vessel near the United Arab Emirates on Thursday and redirected it toward Iranian waters. Separately, an Indian cargo ship carrying livestock from Africa to the UAE sank Wednesday off Oman’s coast.

According to the White House, Trump and Xi both agreed on the need to keep the shipping route operational.

Iran’s Revolutionary Guards stated that 30 ships had crossed the Strait of Hormuz since Wednesday evening. Although that remained far below the roughly 140 vessels that typically used the route daily before the conflict, it would still mark a notable increase if verified.

Supply Constraints Continue Supporting Crude Prices

Yang An of Haitong Futures said tight supply conditions remained the dominant force supporting oil prices.

“Oil prices swung several times yesterday but still closed near the day’s high,” he said.

“Ships passing through the strait eased some market concerns, but not enough to change the strong trend driven by tight supply.”

Gold prices moved lower again on Friday, extending losses for a fourth consecutive session as stronger U.S. economic indicators lifted the dollar and reduced expectations that the Federal Reserve will cut interest rates soon. Investors were also watching developments from talks between U.S. President Donald Trump and Chinese President Xi Jinping.

Spot gold dropped 1.6% to $4,578.74 an ounce by 03:05 ET, or 07:05 GMT. U.S. gold futures fell 2.1% to $4,585.87 an ounce.

Bullion was on course for a weekly decline of about 3%.

Elsewhere in precious metals, silver slid 5.2% to $79.13 an ounce, while platinum fell 2.3% to $2,013.46 an ounce.

Dollar Strength Adds Pressure to Bullion

The U.S. Dollar Index advanced 0.3% during Asian trading, touching its highest level in two weeks. The index was set to gain more than 1% for the week.

Stronger-than-forecast U.S. data released during the week added to concerns that inflation remains sticky, particularly as oil prices climbed amid Middle East tensions. Dollar strength tends to pressure gold because it makes the metal more expensive for international buyers.

The latest data showed U.S. producer prices rose in April at the fastest annual pace in four years, while consumer inflation also exceeded expectations. Retail sales figures indicated that consumer demand remained firm despite higher energy prices.

Those figures prompted traders to scale back expectations for Federal Reserve rate cuts this year, while some investors started to price in the risk of further policy tightening.

Although gold is commonly viewed as protection against inflation and geopolitical stress, higher interest rates can reduce its appeal because the metal does not offer income.

Trump-Xi Summit Brings Constructive Tone but Few Details

Markets closely followed the Beijing meeting between Trump and Xi for clues on trade, diplomacy and the Iran conflict. Both governments described the discussions positively, but the talks ended without major policy announcements.

Chinese state media said the two sides had reached “important consensus” on keeping economic and trade ties stable and agreed to improve coordination on global issues.

Trump previously described the U.S.-China relationship as “very strong” and said Xi had offered support regarding Iran and the Strait of Hormuz. Beijing also urged the reopening of Hormuz and called for dialogue to reduce Middle East tensions.

Gold was also pressured after Trump wrote on Truth Social that “the military decimation of Iran (to be continued!).” The statement highlighted the possibility of further escalation in the Iran war.

Oil price gains tied to disruption in the Strait of Hormuz have made the outlook for gold more complicated by increasing fears that global inflation could stay elevated for longer.

London Metal Exchange benchmark copper futures fell 2.6% to $13,644.22 a ton, while U.S. copper futures dropped 3.1% to $6.37 a pound.