HSBC strategists, led by Max Kettner, remain bullish on risky assets, believing that the second-quarter earnings season will be a more significant driver than geopolitical tensions, even with the escalation of conflict in Iran. They highlight that market expectations for U.S. earnings growth are still quite low, which could set a low bar for companies to clear. The team's sentiment and positioning framework has not yet indicated a sell signal, and systemic investors' positions are described as largely neutral.
The strategists also observed an unexpected decline in the U.S. Consumer Price Index (CPI) in June, suggesting that U.S. exceptionalism might be starting to fade. This development could initially boost risky assets. However, they caution that a decline in U.S. Treasury yields and a steepening yield curve could eventually lead to a challenging market environment.
In a broader market view, HSBC maintains a constructive stance on risk assets for the second half of the year, identifying the upcoming second-quarter corporate reporting season as a key upside catalyst. They address investor concerns about AI overspending, geopolitics, and higher U.S. rates, suggesting that geopolitical risk is largely in the "rear-view mirror."
HSCB has also reweighted its regional equity allocations for the second half of 2026, shifting from an overweight position in emerging markets to eurozone equities, particularly banks. Kettner noted that lower consensus growth expectations and a weaker euro could provide a near-term tailwind for eurozone financials. He also warned that potential cuts in AI capital expenditure could negatively impact semi-conductor stocks and, consequently, emerging market equities.
