The current bull market is not exceptional, says HSBC, as it upgrades view on U.S. stocks

By Steve Goldstein

Historically, the current bull market really isn't that exceptional, say strategists at HSBC who are becoming more positive on U.S. stocks.

HSBC raised its rating on U.S. equities to "tactically overweight" from neutral, in a note to clients on Friday. Tactical refers to its view over a three- to six-month horizon.

The strategists offered this chart, showing the S&P 500 SPX versus other bull markets since 1956:

"When looking at the average bull markets of the S&P 500 over the last few decades, it's merely caught up with what has so far been a pretty subpar recovery," say strategists led by Max Kettner, chief multi-asset strategist.

They went on to defend U.S. stocks from worries about a bubble.

Equity valuations have moved in line with declining interest-rate volatility since the beginning of the year.

"Yes, valuations have moved a little ahead of what rates vol would suggest. So we wouldn't be going max overweight equities here just yet as hawkish data surprises can still lead to intermittent dips in equity valuations. But to claim a bubble is forming in equity markets ignores receding uncertainty around interest rates," they say.

They say it doesn't really matter, for now, if the Fed cuts two or three times, as long as it cuts. "Where rates ultimately end up - which could be important for valuations - is a question for further down the line," they say.

Further, both U.S. households and corporates have less rate sensitivity than they did decades ago - non-financial debt is lower than it was before the 2008 financial crisis. The share of U.S. households with floating rate debt is near the lowest level in decades.

They also say there's a tendency to be too bearish on earnings. There's "nothing wrong" with large caps and techs driving earnings and margin strength. "We'd only continue to shy away from U.S. small caps, where earnings momentum is poor and the high share of floating-rate debt is a risk if U.S. yields were to rise once again," they say.

Another point they make is that U.S. equities are only 9% higher than their Jan. 2022 highs, while nominal gross domestic product has risen 13% since then. "As long as we don't see a real streak of negative activity surprises, the outperformance of risk assets vs [developed market sovereign debt] is very likely going to continue," they say.

The S&P 500, Dow Jones Industrial Average DJIA and Nasdaq Composite COMP each closed Thursday at a record high.

Read: 'Keep buying the S&P 500,' says Wall Street's most bullish bank - hikes year-end target to 5,500

-Steve Goldstein

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03-22-24 0557ET

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