HSBC's Market Outlook

Investing.com — HSBC stated that the recent pause in the post-election rally for risk assets and the weaker U.S. equity breadth do not indicate broader market weakness, as the bank continues to have a positive outlook heading into 2025.

HSBC highlighted several supportive factors:
– Low near-term earnings expectations
– Rising growth forecasts
– Dissipating election uncertainty
– Possibility of gradual rate cuts by the Federal Reserve

The bank also mentioned revisions indicating higher U.S. disposable income and potential disinflation in early 2025.

Despite concerns from some investors about high valuations and widespread bullish sentiment, HSBC dismissed these issues, interpreting valuations as a tactical tool. The bank's sentiment indicators are not yet signaling a warning for risk assets.

However, HSBC warned that rising U.S. Treasury yields pose a critical risk to its “goldilocks” outlook, as a hawkish stance from the Fed could push markets into a danger zone where most asset classes would face challenges.

HSBC noted, "The good thing, though, is that downside protection in equities has cheapened substantially since the US election, especially when associated with a conditionality on higher UST yields and/or DXY," indicating opportunities for hedging linked to higher yields or a stronger dollar.