Top HSBC strategist has a warning for retail investors chasing the AI rally

By Barbara Kollmeyer

A very short-term view is the only strategy that works, says Max Kettner

The AI trade is fast moving and investors who want to be a part of that have to step up their game, says HSBC's Max Kettner.

A top strategist at HSBC has some words of wisdom for retail investors seeking exposure to the AI theme: be ready to pivot at all times and don't stop watching your screens.

Max Kettner, who has spent eight years as the bank's London-based chief multi-asset strategist, said market short-termism has intensified so much over the last two years that individual investors may not be aware of what they are dealing with.

Kettner has earned a reputation on Wall Street and in Europe for making prescient market calls. Those include a bullish view on U.S. stocks in 2023 and 2024, which paid off for clients as those years delivered gains of 24% and 23% respectively. He urged dip buying in early 2024 and went maximum overweight stocks in late March, both of which were timely calls.

"This is the challenging thing right now that you've got a fundamental view and you think this is a view for the next three, possibly six months and in reality it all plays out within a week. And it's driven so much by the technicals and so much by positioning and just things that are unrelated to fundamentals," he told MarketWatch in an interview on Tuesday.

For example, taking a bullish position on semiconductors and leaving that alone for 12 months, would have not worked given recent market action, he said. Three months ago, Asian semiconductors slid 40%, U.S. names dropped 30% and the chip trade seemed over, until "suddenly we had this more than 25% rally, and suddenly we're selling off again and all of that within three months," he said.

The iShares Semiconductor ETF SOXX is still up 69% this year, but has dropped over 10% in October so far and recently logged a nine-session losing streak, its worst since May 2006, according to Dow Jones Market Data.

A super tactical and very short-term view on chip stocks is needed because the sector is so cyclical, he said. For example, when sentiment got deeply bearish on those companies during the summer, a smart investor would have realized part of that was due to the Situational Awareness hedge-fund blow-up.

"You've got to be taking profits and you've got to be running very, tight stop losses. You've got to be much more disciplined in your risk management rather than saying this is a great fundamental story, I'll just buy it for 12 months and I'm just going to ride out the volatility. Because that volatility can easily be a 15% to 20% drawdown," he said.

A stop loss sets a limit to how much an investor is willing to lose by triggering an automatic sell at a certain threshold.

He said the tempo of markets has really changed since COVID due to the increased usage of leverage that can "exacerbate" market moves in both directions.

Kettner said they have been seeing better opportunities outside of the technology sector as HSBC has a preference for the equal-weight S&P 500. All companies are weighted equally in that index, which means no domination by a single name or group of stocks.

What it will take for the strategist to become more positive on U.S. tech? He's looking out for more clarity and signs that stocks are oversold from technical signals such as momentum indicators.

Earnings season may also bring "a bit of a sense of comfort," he said. "I think the earnings season is probably also from a fundamental sense, it's a sort of let's calm down the nerves a little bit," he said.

He expects fuller earnings clarity the week after midterms, when the reporting season is largely over - except for AI.

"It's a constantly moving goal post," he said. "The concerns around overspending, the concerns around monetization, they won't go away, the concerns around too-high capex/too much debt, issuance, that will not go away. If anything, that will probably intensify in 2027."

-Barbara Kollmeyer

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