MW Too complacent? This bank argues markets aren't bullish enough

By Jules Rimmer

Investors are too conservative and should increase their risk appetite, says one bank's strategy team after receiving pushback from fund managers on their bullish call for stocks.

When HSBC argued for a risk-on stance over the summer, the reception from investors was less than enthusiastic. Complacency was the criticism most frequently aired and fund managers alleged that markets were ignoring risks such as positioning, dollar weakness, geopolitics, longer-term yields and the effects of front-loading, whereby importers stepped up activity in advance of Trump's tariff war.

In their weekly "Spotlight" report, HSBC's multi-asset team way through the market's fault lines, explaining why the accusations of complacency are not applicable.

The first topic they address is if is the effect of front-loading ahead of tariffs hits demand, or if tariffs his consumer and labor market demand.

HSBC disagrees that front-loading masks underlying weakness in the U.S. economy and believes risk assets will focus on prospects of the Fed cutting rates if data turn soft, or the stimulatory impact of tax cuts. They add that consensus forecasts for 2025 growth have already been revised lower by a full percentage point and, given S&P 500 SPX index earnings estimates for the second quarter have been cut back, this creates a low bar to beat.

HSBC points to persistently positive wage growth and increases in household wealth as pillars of support for consumer spending. They also posit that analysts may be underestimating the tailwinds of a weaker dollar and the boost to growth AI is providing.

HSBC's strategists, led by Max Kettner, believe the market underestimates the impact of positioning at present, while their proprietary sentiment and positioning indicators are still sending a buy signal.

The report examines the impact of dollar weakness DXY and considers that it's net positive for U.S. earnings, particularly since U.S. mega caps derive more than half their revenues from overseas. Not only that, the relative strength of other currencies allows central banks globally to cut rates and trigger better global lead indicators.

As for geopolitics, HSBC makes a painstaking survey of geopolitical shocks dating back to the bombing of USS Cole in 2000 and concludes that, 81% of the time, U.S. equities posted gains over the following month. Gold (GC00) and oil (CL.1) generally receive only temporary - and highly volatile - boosts.

The last pushback HSBC refutes is the objection that it's possible to be bullish on stocks, while flagging the risks of higher long-term yields. For the team, the "danger zone" for 10-year U.S. Treasury yields BX:TMUBMUSD10Y yields is 4.7%, still some 30 basis points higher than where they are now and they are confident that the seasonal pick-up in jobless claims over the summer will keep the long end of the curve rangebound for the time being.

-Jules Rimmer

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June 24, 2025 07:08 ET (11:08 GMT)

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