Investing.com -- HSBC said the recent stalling of the post-election rally in risk assets and weaker U.S. equity breadth do not signal broader market weakness, as the bank maintains a positive outlook heading into 2025.
HSBC (LON:HSBA) noted a range of supportive factors, including low near-term earnings expectations, rising growth forecasts, dissipating election uncertainty, and the prospect of gradual rate cuts by the Federal Reserve.
It also pointed to revisions showing higher U.S. disposable income and potential disinflation in early 2025.
While some investors flagged concerns over high valuations and widespread bullish sentiment, HSBC shrugged them off since it views valuations as a tactical tool and said its sentiment indicators do not yet signal a warning for risk assets.
But HSBC cautioned that rising U.S. Treasury yields remain a key risk to its "goldilocks" outlook. A hawkish stance from the Fed could push markets into a danger zone, where most asset classes would struggle.
"The good thing, though, is that downside protection in equities has cheapened substantially since the US election especially when combined with a conditionality on higher UST yields and/or DXY," HSBC added, pointing to the hedging opportunities tied to higher yields or a stronger dollar.