HSBC Strategists: Earnings and Valuations Underpin Risk Asset Resilience
Alina Collins
HSBC strategist Max Kettner's team holds its maximum overweight on equities, arguing that earnings growth far outpacing stock-price gains has compressed valuations naturally — giving the market a cushion even as inflation and geopolitical risks heat up.
Why didn't the Middle East flare-up or the oil spike break the market?
The S&P 500 sits less than 3% below its June all-time high, trading in a narrow range for two months despite Middle East escalation, rising oil prices, and a global momentum-stock selloff.
This means → the sentiment- and positioning-driven sell signals from earlier have already been flushed out in the prior pullback, leaving a firmer floor than the surface suggests.
Kettner's team cites this resilience to maintain its maximum overweight on equities.
Valuations were stretched — where does the safety margin come from?
The S&P 500's 12-month forward P/E — a measure of how expensive stocks are relative to expected earnings — has fallen from a peak of roughly 23× last October to about 19.5×.
In plain terms = share prices barely dipped, but corporate earnings grew roughly twice as fast as prices rose, so the valuation ratio was "earned" down.
This reflects a market underpinned by fundamentals, not sentiment alone.
How strong is this earnings season, really?
Trailing year-on-year earnings growth for S&P 500 constituents is running near 27%, above the 23.2% expected before reporting began; 85.5% of companies that have reported beat estimates — the highest ratio in nearly five years.
European earnings growth hit 11.7%, the strongest in almost three years, also slightly above pre-season estimates.
Kettner says investors were "once again too pessimistic on earnings," with forward EPS estimates still being revised upward in what he calls "another quarter of broad-based strength."
Can equities hold up if bond yields keep climbing?
Kettner's team sees rising yields as not a major threat: equity investors have largely adjusted to the high-rate environment, and credit spreads — the gap between corporate and government bond yields, a proxy for default-risk pricing — remain stable.
In plain terms = U.S. long-end real rates are already at multi-decade highs; the market has priced in "rates will stay higher," which is why the oil-price spike triggered no panic.
The team adds that if U.S. economic exceptionalism reverses, falling long-end yields could actually become a tailwind for stocks.
What is the biggest risk to this call?
Kettner has been bullish for roughly three and a half years, during which the S&P 500 rallied about 80% — a strong record, but one that raises the stakes if the call turns wrong.
This means → he himself acknowledges that whether earnings estimates keep getting revised upward is the key validation point: if upgrades stall, the valuation cushion thins fast.
Content is for reference only, not financial advice.