HSBC: There is still room for the current bull market in US stocks, and the rating is further upgraded

As the market hits a new high, HSBC continues to support the US stock market. Analysts point out that the "bubble theorists have 'ignored the declining uncertainty around interest rates'".

In its latest report, HSBC has upgraded its rating on the US stock market from neutral to "tactically overweight", expecting a positive performance in the next 3 to 6 months.

The bank's chief asset allocation strategist, Max Kettner, and other strategists compared Pro UltrPro Shrt S&Pro 500 with other bull markets since 1956, and stated:

Compared to the average bull market trends of the past few decades, the current trend is only on par with a rather ordinary recovery.

Analysts further defended the US stock market, stating that there are currently no concerns about asset bubbles. They mentioned that the rise in stock market valuations since the beginning of the year has been consistent with the decrease in interest rate volatility.

Yes, valuations are indeed slightly higher than what interest rate volatility implies. Therefore, we are not yet at maximum overweight on the stock market, as unexpected hawkish data could still cause valuation pains. But claiming that the stock market is forming a bubble is ignoring the declining uncertainty around interest rates.

The report believes that as long as the Federal Reserve continues to cut interest rates, whether it is two or three times is temporarily not important.

The ultimate position of interest rates is more crucial for valuations, which is a longer-term issue.

Furthermore, the interest rate sensitivity of US households and businesses has decreased compared to decades ago - non-financial debt is lower than the levels before the 2008 financial crisis, and the proportion of US households with floating rate debt is at its lowest level in decades.

The report also points out that people often overly pessimistic about corporate earnings:

Large tech companies have been driving profit and profit margin growth, which is not a problem. We will continue to avoid US small-cap stocks, where profit momentum is weak, and a high proportion of floating rate debt poses a risk if US interest rates rise again.

In addition, analysts emphasize that Pro UltrPro Shrt S&Pro 500 is only 9% higher than the high point in January 2022, but during this period, the US nominal GDP has grown by 13%:

As long as we do not see consecutive negative data shocks, the relative performance advantage of risk assets over developed market sovereign bonds is likely to continue