HSBC Holdings PLC recently released a multi-asset strategy analysis report focusing on market dynamics for August 2025, clearly maintaining a "risk-on" stance for the final four months of 2025. The bank recommends overweighting high-yield bonds and equities, with a particular preference for US stocks. The core logic centers around improving economic fundamentals, policy expectations, asset performance, and corporate earnings, while providing specific allocation recommendations.

**Accelerating Recovery**

From an economic fundamentals perspective, signals of accelerating US economic recovery are clear. In mid-August, the bank emphasized that the fundamental environment was improving, with high-frequency macroeconomic data and corporate microdata continuing to trend positively. Currently, the bank still views tariff-related news as market background noise.

August high-frequency macro and micro data continued to improve, contrasting with tepid market expectations. HSBC's GDP forecast diffusion index improved, supporting the risk-on stance. The US Q2 GDP annualized quarter-over-quarter revised figure reached 3.3%, above the initial 3.0%, with consumption being the main support. The Atlanta Fed's real-time Q3 GDP forecast shows resilient consumption, with goods consumption contributions rising further in August.

However, inflation pressure requires vigilance. July core PCE inflation rose to 2.9% year-over-year, the highest since February and exceeding core inflation acceleration over the past three months. July pricing pressures covered multiple sectors, and goods inflation has already shown tariff impacts.

**Hawkish Risks**

Although Fed Chairman Powell opened the door for a September rate cut at the Jackson Hole meeting, the bank believes market expectations for future policy remain too dovish – current pricing suggests the Fed may cut rates approximately 5.5 times by December 2026.

Even for expectations of about 3.3 cuts by March 2026, considering that US economic growth may be stronger than expected, inflation pressures may intensify further, and unemployment rates face downside risks (currently few economists predict this scenario), the bank also considers this too aggressive, potentially undermining the rationale for rate cuts.

If hawkish risks materialize, the bank believes this would not cause risk assets to stumble. Current rate expectations are far from entering the "danger zone," and conversely, initial economic data strengthening may be interpreted by markets as positive signals for risk assets.

Additionally, President Trump's expectations for Fed rate cuts previously triggered US Treasury curve steepening. HSBC remains cautious on long-end Treasuries, maintaining an underweight stance.

**Continued Positive View on Risk Assets**

The bank continues to overweight high-yield bonds and equities, with the strongest preference for US stocks. The bank increasingly believes the S&P 500's upward range will expand further, with reasons including: (1) continued proliferation of artificial intelligence (AI) applications across industries; (2) signs of accelerating economic recovery may support certain lagging sectors sensitive to economic activity, such as durable consumer goods and apparel, household and personal products, and transportation industries.

For allocation recommendations, the bank overweights equities with priority on US stocks, believing this "broadening rally" will benefit the equal-weighted S&P 500 index. However, the bank considers the Russell 2000 index (small-cap index) currently lacks attractiveness.

Simultaneously, for bonds, the bank overweights US dollar high-yield bonds while underweighting Treasuries. The bank maintains near-maximum overweight in US dollar high-yield bonds – currently BB and B-grade bond spreads have retreated to low levels, but CCC-grade bond spreads remain about 65 basis points above January lows.

For foreign exchange, if global economy and emerging market equities remain strong, emerging market currencies may have room for improvement.

**Asset Performance**

Asset performance in August 2025 showed clear differentiation across categories. Among commodities, gold rose on rate cut expectations while crude oil was boosted by geopolitical news. For equities, US stocks hit historical highs, Latin American stock markets gained over 6% monthly, and Japanese stocks performed well. In fixed income, US dollar high-yield bonds and 7-10 year Treasuries performed best. In foreign exchange markets, G10 currencies diverged while most emerging market currencies depreciated against the dollar.

Corporate earnings and AI impact provide important support. US Q2 earnings were impressive, with S&P 500 EPS beat rate at 81% and year-over-year blended growth rate of 11.9%, achieving double-digit growth for three consecutive quarters. Financial and IT sectors performed prominently while materials lagged.

AI's impact on companies is significant, with 44 S&P 500 sample companies achieving 1.5% operating cost savings and average 24% efficiency improvements through AI. The 1% cost savings can partially offset tariff pressures. HSBC recommends prioritizing allocation to companies with "actual AI application implementation."

**Sentiment and Fund Positioning**

HSBC's comprehensive contrarian sell signal indicates moderate selling, but the probability of significant short-term corrections is low, as moderate sell signals correspond to limited correction magnitudes and lack fundamental triggering factors. Actual fund investors remain cautious on risk asset positioning, with current risk asset fund inflows slowly recovering, which will support risk assets.