HSBC strategists say the decline in equity valuations reflects the pressure from the surge in interest rates over the past few months, while weakening market breadth is a contrarian indicator that typically signals the market is in an oversold state.

The team, led by Max Kettner, reiterated its bullish stance on equities, citing improving economic growth and earnings expectations. They wrote in a research note: "It is not realistic to say that interest rates have had no impact on risk assets at all."

In the bank's short-term sentiment and positioning framework for risk assets, no indicator is currently flashing a sell signal.

Even so, given the uncertain outlook for the Middle East conflict, they maintained their highest underweight position in sovereign bonds.