HSBC Sees More Gains for US Stocks, Citing 3% Earnings Growth

A top strategist at HSBC believes the U.S. stock market rally has further to run, arguing that a solid corporate earnings season is more than enough to offset risks from geopolitical instability. The comments come as U.S. stock futures pushed higher after a weaker session, buoyed by an easing of tensions in the Middle East.

"While this market cycle has taken longer than previous ones to shake off conflict-driven volatility, the focus has now returned to what ultimately drives stock prices: corporate earnings," Max Kettner, a strategist at HSBC, said in an interview.

Kettner highlighted that corporate earnings have expanded by more than three percent since early March, with the technology sector accounting for roughly three-quarters of that growth. The sector’s heavy weighting in the market was a key factor in his analysis. U.S. stock futures saw gains, with S&P 500 futures rising 0.5% and Nasdaq 100 futures advancing 0.6% in evening trading, according to data from Investing.com. This followed a regular session where the major indices each declined 0.6 percent.

The strategist’s outlook suggests that the fundamental strength of corporate America, particularly in high-value technology and artificial intelligence, is a more significant driver for equity values than international conflict headlines. Given that the AI and tech sectors now represent nearly 50 percent of the S&P 500's total market capitalization, their financial performance provides a substantial buffer for the broader market. This view is reinforced by a market backdrop where investors are closely watching corporate scorecards from companies like Boeing and AT&T.

Resilient Earnings and Shifting Focus

Across the Atlantic, European markets have also shown resilience, with the STOXX Europe 600 index recently posting gains as investor optimism grows around corporate earnings. This trend of fundamentals taking precedence over geopolitical news is becoming a global theme. For instance, Swedish banking group Handelsbanken reported a nine percent increase in operating profit for the first quarter, demonstrating corporate strength in a challenging macroeconomic environment.

The market's immediate reaction to a ceasefire extension between the U.S. and Iran saw a risk-on move, but the underlying support comes from these profit fundamentals. Cross-asset indicators showed a mixed but stabilizing picture, with the U.S. 10-Year Treasury yield holding steady around 4.29 percent, while the Dollar Index dipped slightly. Crude oil prices remained elevated near $91 per barrel, reflecting lingering concerns over potential supply disruptions. Kettner’s analysis implies that as long as earnings momentum continues, investors will likely maintain a "buy the dip" approach, seeing market pullbacks as opportunities rather than the start of a sustained downturn.

This article is for informational purposes only and does not constitute investment advice.