Amid Soaring Oil Prices and Tech Stock Sell-Off, HSBC Maintains Bullish Stance: Five Reasons Supporting Further Gains in US Stocks

Despite a 40% surge in oil prices year-to-date, a severe setback for the global semiconductor sector, and ongoing tensions in the Middle East, global stock markets are less than 1% away from their historical highs. HSBC believes this unexpected resilience indicates that the market has already priced in most negative factors, while positive catalysts such as earnings improvements and falling interest rates still lie ahead. Therefore, now is the time to increase equity allocations to "maximum overweight."

A team of strategists at HSBC, led by Max Kettner, released a research report this week stating that the market has remained robust in the face of a series of shocks: Brent crude has risen 40% cumulatively this year, the Korea Composite Stock Price Index (Kospi) has fallen more than 30% this month, the Philadelphia Semiconductor Index (SOX) dropped 16% over the same period, and shares of Elon Musk’s SpaceX have declined by over 20% since its listing. Yet global stock markets remain just a step away from historical highs.

"It seems that nothing can truly shake this market," Kettner’s team wrote in the report.

Moreover, the credit market has not signaled any significant risks. Spreads on European high-yield bonds continue to narrow, while spreads on emerging market and US dollar high-yield bonds have remained largely flat, further confirming that overall market risk appetite remains solid.

Five Reasons Supporting "Maximum Overweight"

HSBC maintains its "maximum overweight" rating on equities, primarily based on five key judgments.

First, market expectations for global economic growth have been significantly revised downward since the beginning of the year, implying that it will be easier for positive data to exceed expectations in the future, rather than facing new disappointments.

Second, investors were previously too pessimistic about corporate earnings in the second quarter, but this earnings season has again seen widespread beats, mirroring the situation in the previous quarter. Corporate earnings resilience continues to surpass market expectations.

Third, regarding valuations, the US stock market, especially certain large-cap tech stocks, is currently valued even lower than at the onset of the US-Iran conflict, providing a higher margin of safety for subsequent gains.

Fourth, the sharp rise in US Treasury yields actually implies room for future declines. The current yield on the 2-year US Treasury note stands at 4.316%, nearly 1 percentage point higher than when the Middle East conflict erupted. HSBC expects that a decline in bond yields in the coming months will become an important supporting factor for stocks, although the timing is not yet ripe. Therefore, it currently maintains a "tactical underweight" position on US Treasuries.

Fifth, although there has been concentrated selling in memory chip stocks and bonds of hyperscale cloud computing companies recently, capital has not left the market but has flowed into other industries, driving continued internal market rotation. HSBC expects that this process of capital reallocation will continue in the coming weeks.

After Consecutive Bullish Calls, Kettner Remains Firm

Since 2023, Kettner has been one of the most steadfast bulls on Wall Street.

At that time, against the backdrop of high inflation and aggressive interest rate hikes, most strategists were cautious about the stock market, while Kettner insisted on a bullish stance on equities. Subsequently, the S&P 500 rose 20% for the full year, validating his judgment.

However, Kettner has not become complacent about his success in recent years. In an interview with Bloomberg earlier this month, he stated: "Even if our judgments have been generally correct in recent years, we must constantly verify whether these judgments still hold true."

Today, global stock markets are only about 1% away from the historical highs set in early June. In HSBC’s view, the market has proven its ability to withstand a series of negative factors such as soaring oil prices, escalating geopolitical conflicts, and adjustments in tech stocks. What has not yet been fully priced in, instead, is the new momentum for gains potentially brought by sustained corporate earnings beats and falling bond yields.

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