HSBC analysts have weighed in on the debate – what happens with U.S. equities in case of having higher rates for longer.
In a nutshell, analysts remain optimistic about the S&P 500 performance, even in the face of higher interest rates. The bank’s year-end 2023 S&P target is set at 4,600 for the S&P 500.
With U.S. treasury yields at current levels, HSBC's S&P target would drop to 4,500.
“Current yields and consensus EPS forecasts support a S&P target closer to 4,300, implying further downside if yields are sustained and EPS forecasts materialize, according to our model,” the analysts said in a client note.
“We, however, are more constructive on earnings growth backed by strong economic data and 2Q earnings season beats. Inside the report, we provide a sensitivity analysis of our S&P target based on various levels of U.S. 10-year Treasury yields and 2023 S&P earnings.”
The analysts remind investors of an inverse relationship between yields and equity valuations. According to HSBC’s fixed-income strategists, the 10-year U.S. treasury yield will end the year at 3%.
“If the higher rates for longer narrative persists, valuations for U.S. equities should remain under pressure,” they added.