HSBC: Tech Pullback Broadens Market Breadth, Earnings Foundation Remains Intact
N.R. Finch
HSBC's June strategy report argues the recent US tech pullback is spreading capital across more sectors, delivering the first meaningful breadth improvement in four months, while earnings estimates keep rising and valuations have reset lower — the broader rally remains intact.
Tech stocks fell — why does HSBC call that a positive?
The S&P 500 dropped 1% in June as money rotated out of tech into defensives — healthcare, utilities, and consumer staples.
HSBC sees this as the first real breadth improvement in four months: the equal-weight S&P 500 outperformed the cap-weighted index, and roughly two-thirds of constituents beat the benchmark.
This means → the rally is no longer carried by a handful of mega-caps; more stocks are joining in, widening the market's foundation.
Who has been driving the gains — and how concentrated is it?
Over 87% of the S&P 500's year-to-date gain came from semiconductors, tech hardware, and AI-linked capital goods — still heavily concentrated.
The weakest tech sub-sector in June was software, down about 15%; semis and hardware held up better.
The "Magnificent Seven" fell roughly 9% on average. HSBC frames this as momentum rotation, not fundamental deterioration.
In plain terms = the market is not "dumping tech" — it is redistributing chips that had piled up at the top.
Where do earnings and valuations stand now?
Forward 12-month earnings estimates for IT and the Magnificent Seven have been revised up about 25% year-to-date; the revision trend remains positive.
Valuations have pulled back to roughly 23× forward P/E, making the sector more attractive than before the selloff.
HSBC cites Micron Technology's recent results as reinforcing the AI-semiconductor recovery thesis and finds no evidence that generative AI poses a near-term threat to software companies.
What macro uncertainty remains?
HSBC expects falling oil prices to ease headline inflation, yet maintains its forecast that the Fed will hold rates steady through 2026–2027 — diverging from market pricing for further tightening.
This means → if the Fed turns out more hawkish than HSBC expects, the rate backdrop could put extra pressure on growth-stock valuations.
HSBC's key verification point: whether earnings revisions continue to deliver — that will determine if the current rotation is a healthy broadening or the start of a wider pullback.
Content is for reference only, not financial advice.