MW Another juicy S&P 500 target goes by the wayside as this 6,700 call is thrown into trash

By Barbara Kollmeyer

HSBC slashes its S&P target to 5,600

Another one bites the dust - a Wall Street S&P 500 target, that is.

Falling in line with actions seen by other big banks this year as tariff concerns bite, HSBC on Tuesday slashed its target for the U.S. equity-market benchmark SPX to 5,600 from 6,700, based on a forecast for slower U.S. growth, sticky inflation and falling bond yields.

And they advise clients to play defense in a market that will flip-flop between recession and stagflation fears until clearer tariff and economic signals emerge.

The market will oscillate between those two scenarios till tariff turmoil eases, the Federal Reserve cuts interest rates and/or inflationary pressures don't materialize, said Nicole Inui, HSBC's head of equity strategy for the Americas, and analyst Preethkar R., in a note.

"While we expect a Fed cut in June, concerns on tariffs/inflation could take some months to ease," said the HSBC pair, adding that the market will scrutinize economic data until then, and react accordingly.

"If hard data weaken, the recession trade will be on, while a blip in the inflation data would likely shift the narrative to stagflation concerns. And if hard data hold, the narrative will remain [that] it is just a matter of time until enough time passes."

The S&P 500's loss in 2025, currently at 6%, lines up with declines seen in prior shallow recession/mini-stagflation periods, said the team. Times of higher uncertainty have led to bigger pullbacks of 23% to 25%, while a severe recession, though not a base case for the bank, has meant a 30% drop.

HSBC suggests investors stay defensive given the narrative flip-flop with recession outperformers, such as staples - companies that produce goods always in demand - and healthcare. During stagflation, commodities and healthcare have performed well, but utilities and discretionary companies have done the opposite, they noted.

"However, a weakening in hard data that opens the door for Fed cuts and/or moves to de-escalate the trade turmoil would signal a shift to an offensive approach" in which "we would highlight growth (tech) and economic proxies (financials, industrials)," said the HSBC team.

Don't miss: Here's a very unusual chart. But it makes a good point about the market right now.

-Barbara Kollmeyer

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

April 29, 2025 09:59 ET (13:59 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.