HSBC continues to favour risk assets while addressing client inquiries about potential triggers for a more cautious, bearish stance. In a note published on Thursday, Chief Multi-Asset Strategist Max Kettner outlined why several commonly referenced threats currently sit lower on the bank's list of concerns, and which developments would force a reassessment.
Earnings expectations
Kettner pointed out that consensus for second-quarter U.S. earnings per share anticipates a slight quarter-over-quarter dip. That, he argued, sets a relatively low bar that companies could clear, turning near-term earnings into an upside catalyst rather than a headwind. "Earnings expectations in the near term should actually be another upside catalyst given they should be easy to beat," he wrote.
Geopolitics and energy
On geopolitical risks, HSBC judges energy prices to have stabilised. The bank says that, for geopolitics to blunt optimism around technology, artificial intelligence and potential upside earnings surprises, any escalation would need to be meaningfully large. In other words, only a major deterioration would broadly pressure risk assets.
Interest rates
Regarding monetary policy, Kettner noted that the U.S. front-end has repriced by roughly 30 basis points since the last Federal Open Market Committee meeting. That move, he argued, makes the likelihood of further hawkish surprises more limited in the near term.
Higher-priority concerns
HSBC does identify two areas that it watches more closely. The first is market sentiment and positioning. The bank warns that a broadly positive resolution in the Middle East could spark a sweeping rally across equities and credit. Such a unified move higher could in turn trigger a sell signal within HSBC's own positioning framework. "We're more worried about any supportive news flow from the Middle East prompting a genuinely broad-based rally in equities and credit alike - which in turn could easily prompt a proper sell signal in our positioning framework," Kettner wrote.
The second watchpoint is a pullback in technology and AI spending. HSBC said that substantial backlogs today make a material near-term deceleration unlikely. However, the bank cautions that longer-dated risks include lower memory prices driven by efficiency gains and China's potential progress in the DDR5 market.
Market indicators
The note appeared alongside market data showing HSBC's stock marker HSBA at -4.18% and the two-year U.S. Treasury proxy US2YT=X at -1.05%, as presented in the firm's materials.
Overall, HSBC remains positioned for risk but is explicit about the specific scenarios that would change its view. The bank expects near-term earnings, currently modestly pencilled in by consensus, to act as a possible catalyst to the upside, while keeping a close eye on both a sudden broad-based market rally and any durable slowdown in the technology and AI investment cycle.