HSBC Shifts to Neutral on Equities Citing Short-Term Risks, Remains Bullish for 2027

HSBC has neutralized its short-term tactical stance on equities, citing increased market uncertainty and stretched fixed-income performance. The bank has moved from a maximum overweight position in stocks and a maximum underweight in sovereign bonds, a strategy it held since mid-March, to a tactically neutral view on equities and an overweight position in developed market sovereigns.

A Shift to Neutral

In a note to investors, HSBC's Chief Multi-Asset Strategist, Max Kettner, explained the bank's conviction has lessened amid rapidly shifting market narratives. Kettner pointed to the market's quick pivot from celebrating record highs to concerns over the AI trade as an example of the "constant narrative bingo" influencing the decision.

The strategist stated that the underperformance of fixed income has become stretched, prompting the move to overweight developed market sovereign bonds. The adjustment marks a significant tactical shift for the bank's multi-asset strategy.

Near-Term Risks and Opportunities

HSBC identified several potential near-term headwinds for the market that warrant a more cautious approach.

• Political risks: The bank flagged potential worries about AI regulation in the event of a "Blue Wave" in the U.S. midterm elections, as well as political turmoil in France.
• Geopolitical concerns: Renewed geopolitical tensions in the Middle East were also cited as a key risk factor.

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Despite these concerns, Kettner suggested that any market dips related to these factors could present a "good buying opportunity in the next few weeks." HSBC continues to favor the equal-weight S&P 500 over the more concentrated Nasdaq 100, as well as European and emerging market equities.

Bullish Long-Term Outlook for 2027

While cautious in the short term, HSBC remains bullish on the outlook heading into 2027, identifying three dominant themes for investors:

• Oil and the Middle East
• Hyperscaler free cash flow
• A turning point in Federal Reserve hawkishness

The bank noted that consensus downgrades to hyperscaler free cash flow are beginning to slow, and any sign of improvement would be a "huge positive for tech next year." Furthermore, HSBC anticipates the Fed's hawkish stance will turn in the first half of 2027, believing markets currently underestimate the possibility of negative economic surprises that could force a policy pivot.