HSBC turns overweight on US stocks amid earnings momentum

HSBC upgraded its stance on US equities to “overweight” from “neutral” on Tuesday, citing strong earnings momentum and easing geopolitical risks that are shifting investor focus back to fundamentals.

The brokerage, however, downgraded Europe ex-UK to “neutral,” warning that economic conditions remain weaker in the region.

“European activity looks much weaker and is more at risk from higher energy prices,” HSBC said.

The move aligns with a broader trend among major institutions.

Firms such as Citigroup and BlackRock Investment Institute have also recently turned more positive on US equities relative to global peers.

HSBC noted that nearly 30% of US companies have reported first-quarter results so far, with 84% beating Wall Street expectations by an average of 12%, well above the five-year average.

“Buybacks are adding a steady, but important, tailwind. Announced S&P 500 buybacks total $430 billion year-to-date, up 20% year-on-year. Seasonality also helps, with Q2 typically strong,” the brokerage added.

Earnings strength and AI drive optimism

The firm remains broadly constructive on risk assets, maintaining exposure to equities, emerging market bonds, and high-yield credit, even as geopolitical tensions in the Middle East persist.

HSBC analysts said market reactions to the conflict have been limited and short-lived.

While negative developments have caused temporary dips—particularly in US equities—any signs of de-escalation could support further gains.

The first-quarter earnings season is a key focus, with expectations for strong results driven by the technology and artificial intelligence sectors.

Investors have increased exposure to US equities ahead of major tech earnings releases, supported by robust profit forecasts and forward guidance.

At a regional level, Asian equities remain the most favored, benefiting from similar tech-driven growth trends and potential upside from improved geopolitical conditions.

In contrast, European equities have seen reduced investor interest due to weaker economic momentum.

HSBC also highlighted continued demand for emerging market bonds, supported by lower volatility in US Treasury yields and a softer dollar.

High-yield credit remains another preferred segment within the broader risk environment.

Risks remain from energy and positioning

Despite the upbeat outlook, HSBC flagged several risks that could influence markets in the near term, particularly energy prices and geopolitical developments.

“There ‌are ⁠a few areas worth watching closely: first, oil and energy prices; second, the potential for sector rotation if energy prices remain elevated for an extended period. A durable ceasefire between the US and Iran would likely ease ⁠prices, especially if traffic through the Strait of Hormuz returns to normal.”

Looking ahead, HSBC said it prefers sectors with lower exposure to commodity input costs, including banks, insurance, and technology.

At the same time, it upgraded global basic materials to “overweight,” citing strong earnings revisions and expectations of a broader commodity “squeeze.”

Conversely, the brokerage downgraded global healthcare and industrials to “neutral.”

In fixed income markets, HSBC noted a preference for European bonds over US Treasuries.

It also cautioned that strong US economic data, particularly in the labor market, could lead to upward surprises in interest rate expectations.