HSBC says the recent shakeout has run its course and the sell signal in its sentiment and positioning framework has disappeared. The bank stays at maximum overweight equities, citing lower growth expectations, upgraded earnings estimates and a valuation reset. Global equities sit about 1% off their early-June record after two months in which Asian memory names sold off 40% and momentum stocks fell sharply.
HSBC told clients in a note on Tuesday that the recent shakeout has run its course. The sell signal in its sentiment and positioning framework has now disappeared, leaving the bank firmly positioned for more gains.
Two challenging months that changed little
Chief multi-asset strategist Max Kettner described a challenging two months in which oil rose $30 a barrel after the Middle East conflict flared, Asian memory names sold off 40%, momentum stocks fell sharply and SpaceX’s share price dropped 50% from its intraday high. Yet global equities sit about 1% off their early-June record.
Kettner’s verdict on the stretch: “And, yet, nothing has happened”.
Lower expectations and a cheaper multiple
HSBC pointed to several reasons for the resilience across risk assets. Growth expectations are much lower than earlier this year, and investors have again been too bearish on earnings, with S&P 500 12-month forward EPS upgraded another 5.5% over the past year alongside a broad-based second-quarter reporting season.
Valuations have also reset. The forward price-to-earnings multiple now sits a full two turns below its 21.5 level at the start of the conflict.
Where the bank is positioned
Higher bond yields explain why equities have shrugged off oil, HSBC said, and it argued that an unwind of U.S. exceptionalism could turn lower yields into a tailwind. The bank also said the hyperscaler debt selloff masks lower issuance and strength elsewhere.
With the bad news flow behind it, HSBC remains at maximum overweight equities, overweight high-yield and emerging-market credit, and underweight Treasuries, Japanese government bonds and oil.
Source: Investing.com
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