MW Markets are resilient - but this bank says it could all apart quickly. 'Fundamentals remain dire.'

By Barbara Kollmeyer

If the market recalibrates toward fewer rate cuts, it would threaten stocks, says HSBC

At the near midway mark of a year marked by tariff turmoil, the battle between the bears and the bulls is still shaping up.

"The AI mega force keeps us overweight U.S. stocks and positive on developed market stocks, even with more volatility," a team at BlackRock Investment Institute led by head Jean Boivin told clients. They see a "supply-driven contraction in U.S. activity this year," if tariffs remain the same, but a persistent "AI mega force" keeping developed, especially U.S. stocks, in a better spot.

And widely respected investor Bill Miller recently declared "the worst is over" for markets largely because much of the bad news has been priced in.

Now from the bearish corner.

"We are struck at how resilient risky assets remain against a tumultuous policy backdrop and high uncertainty," a team at HSBC led by U.S. economist Ryan Wang and other strategists say in a new research note.

Narrowly escaping a bear market last month, the S&P 500 SPX is up 13% from its 52-week low of 4,982 reached April 8.

"We think it's tough to see a scenario where such resilience remains intact. Fundamentals remain dire. Negative activity surprises could see risky assets fall quickly." They also doubt that "a policy move from the Fed alone (a "Fed put") would turn market sentiment around."

HSBC said the Wednesday decision by the Fed to keep interest rates on hold again only drives home the policy dilemma it faces from mixed incoming data and economic uncertainty surrounding tariffs. The strategists are most worried evidence of a hiring slump will finally show up in May hiring data, due June 6.

"If inflation concerns become more dominant in the coming months, then the market may recalibrate toward expecting fewer cuts this year. Thiscould bring the 'danger zone' back into play - that is, the high level of rate expectations that prompts a broad-based selloff," said chief multi-asset strategist Max Kettner, offering this chart of one-month forward interest rate expectations. The red box represents an area of possible higher interest-rate expectations that could be a problem for stocks.

HSBC's strategists said they are using sentiment and positioning indicators as their signals on when to get more positive on stocks again. They've "backed away from buying territory in the last two weeks," given the most fast-moving of their indicators on those fronts have returned to neutral.

"With sentiment not providing a clear steer, the fundamentals do not justify chasing the risk asset recovery further, in our view," they said. So their underweight on stocks, particularly in the U.S., stands.

The markets

U.S. stock futures (ES00) (YM00) (NQ00) are surging on U.S.-U.K. trade-deal hopes after major indexes snapped a two-day losing streak. Treasury yields BX:TMUBMUSD10Y BX:TMUBMUSD02Y are rising, the dollar DXY is up 0.5% and gold (GC00) is slumping.

   Key asset performance                                                Last       5d     1m      YTD      1y 
   S&P 500                                                              5631.28    1.12%  3.20%   -4.26%   8.55% 
   Nasdaq Composite                                                     17,738.16  1.67%  3.58%   -8.14%   8.80% 
   10-year Treasury                                                     4.296      7.50   -14.00  -28.00   -16.40 
   Gold                                                                 3382.8     2.53%  9.13%   28.17%   46.06% 
   Oil                                                                  58.59      0.64%  -6.58%  -18.48%  -26.04% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

President Trump teased a "big and exciting day" for the U.S. and U.K. on Thursday on social media, and media reports are pointing to a trade deal between the countries that would involve reductions in auto tariffs for both countries but the U.K. still paying the 10% global tariff. The Oval Office announcement is scheduled for 10 a.m. Eastern.

He also called Fed Chair Jerome Powell a "fool" for keeping interest rates steady.

AppLovin shares (APP) are climbing after the mobile-ad tech group reported surging ad revenue and offered an upbeat outlook.

Zillow stock (Z) is dropping after the real estate platform swung to a profit, but sales disappointed.

ARM Holdings stock (ARM) was dropping after a disappointing forecast.

At 8:30 a.m. there will be weekly jobless claims and first-quarter productivity data, with wholesale inventories at 10 a.m.

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The chart

The chart from Vanda Research shows how retail investors have focused contrarian buying, that is going against the market grain, on Ford $(F)$. The automaker earlier this week pulled guidance for 2025, citing big near-term risks and warned of a $1.5 billion tariff hit this year. Shares are up 2.4% this week, but down 8% this year. "The blue bars indicate the total net flow from retail traders since 14 Feb '25, when Trump first floated the potential for auto tariffs. The dots, capture the extent of retail inflows into some of the U.S.-listed automakers," say Vanda.

Top tickers

These were the most-active tickers on MarketWatch as of 6 a.m.:

   Ticker  Security name 
   NVDA    Nvidia 
   TSLA    Tesla 
   PLTR    Palantir Technologies 
   AMD     Advanced Micro Devices 
   AAPL    Apple 
   MSTR    MicroStrategy 
   TSM     Taiwan Semiconductor Manufacturing 
   AMZN    Amazon 
   GOOGL   Alphabet 
   MLGO    MicroAlgo 

Random reads

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-Barbara Kollmeyer

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May 08, 2025 06:57 ET (10:57 GMT)

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