S&P 500 to continue grinding higher amid low Q3 earnings expectations: HSBC

Investing.com — HSBC expects equities to keep moving higher, citing low earnings expectations and favorable market conditions.

In their latest note, HSBC analysts stated, “Low near-term US earnings expectations now set us up for a further squeeze higher in equities.”

Despite cautious investor sentiment, HSBC maintains a bullish outlook on US equities and is increasing its exposure to cyclical stocks.

The bank emphasized that fundamentals remain strong, and “global equities are at all-time highs” while nowcasts suggest over 3% US GDP growth in the third quarter.

“Fiscal stimulus is at full throttle in the US,” the analysts said, while China is also ramping up stimulus, and rate cuts are taking place worldwide.

Although many investors remain cautious ahead of the US elections, HSBC believes the market has misjudged the timing of its positioning.

“We’ve spent most of our summer arguing against a US slowdown, against cracks in the US labor market, against the carry trade unwind being a systemic event, against the bad September/October seasonality, and against pre-US election volatility,” the analysts wrote.

HSBC also addressed bearish concerns surrounding the economy, such as profit concentration among mega-caps and potential risks to consumer spending. However, the bank highlighted that revisions to US national accounts data have dismantled most of these narratives.

“We continue to do the opposite of Q3 by fading defensives and bond proxies,” HSBC stated, adding that they remain overweight US equities, high-yield credit, and Asian equities.

The bank is also closing its overweight position in energy after the recent rally and prefers “shorter-duration, less USD-sensitive HY credit over EMD.”

HSBC remains optimistic about the S&P 500‘s prospects, stating that low expectations could fuel further gains. However, analysts are becoming skeptical about the potential for a post-election rally.