To The Moon

Amid soaring oil prices and a tech stock sell-off, $HSBC Holdings PLC(HSBC)$ maintains a bullish stance: Five reasons support continued gains in US stocks

HSBC's bullish view on US stocks is based on five key assessments:

• global economic growth expectations have been significantly revised downwards, making better-than-expected data more likely in the future;

• corporate earnings have exceeded pessimistic expectations for several consecutive quarters, continuously validating fundamental resilience;

• US stock valuations are already lower than at the initial stages of geopolitical conflicts, providing ample safety margins;

• US Treasury yields have room to fall after a sharp rise, potentially providing support for the stock market;

• market funds have not left but have been reallocated through sector rotation, a trend expected to continue.

Despite a 40% surge in oil prices this year, a severe blow to the global semiconductor sector, and continued 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 digested most of the negative factors, while positive catalysts such as improved earnings and lower interest rates remain ahead. Therefore, now is the time to increase equity positions to "maximum overweight."

A research report released this week by a team of strategists at HSBC, led by Max Kettner, stated that the market has remained resilient despite a series of shocks: Brent crude oil has risen 40% year-to-date, the Korea Composite Stock Price Index (Kospi) has fallen over 30% this month, the Philadelphia Semiconductor Index (SOX) has fallen 16% over the same period, and SpaceX's stock price has fallen more than 20% since its IPO. However, global stock markets remain just a step away from their all-time highs.

"It seems nothing can really shake this market," Kettner's team wrote in the report.

Furthermore, the credit market has not released any significant risk signals. Spreads on European high-yield bonds continued to narrow, while spreads on emerging market and US dollar high-yield bonds remained largely flat, further confirming that overall market risk appetite remains robust.

Five Reasons Support "Max Overweight" Rating HSBC maintains its "maximum overweight" rating on equities, primarily based on five key assessments.

• First, market expectations for global economic growth have been significantly revised downwards since the beginning of the year, meaning that future positive data is more likely to emerge than new disappointments.

• Secondly, investors were overly pessimistic about second-quarter corporate earnings, but this earnings season has again seen widespread better-than-expected results, mirroring the previous quarter, with corporate earnings resilience continuing to exceed market expectations.

• Thirdly, from a valuation perspective, US stocks, especially some large-cap tech stocks, are currently valued even lower than at the beginning of the US-Iran conflict, providing a higher safety margin for subsequent gains.

• Fourthly, the sharp rise in US Treasury yields actually suggests room for future declines. The current 2-year US Treasury yield is 4.316%, nearly 1 percentage point higher than at the outbreak of the Middle East conflict. HSBC expects that declining bond yields will be a significant supporting factor for stocks in the coming months, but the timing is not yet ripe, therefore maintaining a "tactical underweight" position in US Treasuries for now.

• Fifthly, recent concentrated selling of memory chip stocks and bonds issued by large-scale cloud computing companies has not resulted in funds leaving the market but rather flowing into other sectors, driving continued market rotation. HSBC expects this round of fund reallocation to continue in the coming weeks.

Despite his consistently bullish stance, Kettner remains steadfast.

Since 2023, Kettner has been one of Wall Street's most steadfast bulls.

At that time, amidst high inflation and aggressive interest rate hikes, most strategists were cautious about the stock market, but Kettner maintained his bullish outlook. Subsequently, the S&P 500 rose 20% for the year, validating his prediction.

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

Currently, global stock markets are only about 1% away from their all-time highs reached in early June. HSBC believes the market has proven its resilience to a series of negative factors, including soaring oil prices, escalating geopolitical conflicts, and a correction in tech stocks. What is truly not yet fully priced in is the potential for a new round of upward momentum driven by continued better-than-expected corporate earnings and falling bond yields.