HSBC remains bullish on risk assets heading into 2025, dismissing concerns over recent market volatility and weaker U.S. equity breadth. The bank highlights several supportive factors, including low earnings expectations, improved growth forecasts, and reduced election-related uncertainty, as catalysts for a strong market performance.

Key Supportive Factors for 2025

1. Low Earnings Expectations and Rising Growth Forecasts

HSBC notes that near-term earnings expectations have been revised downward, setting a low bar for corporate performance. Combined with improving growth projections, this creates an environment where companies are likely to outperform.

Investors seeking to evaluate corporate performance and profitability trends can use the Financial Growth API to analyze historical growth patterns, providing insights into sector resilience.

2. Reduced Election Uncertainty

The post-election environment has dissipated much of the political uncertainty, providing a clearer path for investment decision-making. The potential for Federal Reserve rate cuts in 2025 further bolsters confidence in a "goldilocks" scenario of stable growth with manageable inflation.

HSBC also cites upward revisions in U.S. disposable income and the likelihood of disinflation in early 2025 as positive macroeconomic indicators.

3. Valuations and Sentiment Indicators

While high valuations and widespread bullish sentiment have raised investor concerns, HSBC views these as tactical considerations rather than signs of broader market weakness. The bank's sentiment indicators suggest that the market remains on stable footing.

For a closer look at sector-specific valuation trends, the Sector P/E Ratio API offers valuable data on price-to-earnings ratios across industries, helping investors identify undervalued opportunities.

Cautionary Notes: Treasury Yields as a Key Risk

Despite its optimism, HSBC warns that rising U.S. Treasury yields could disrupt its outlook. A hawkish Federal Reserve stance might push yields higher, creating headwinds for risk assets.

The bank emphasizes the importance of hedging strategies in such scenarios, noting that equity downside protection has become more affordable since the U.S. election. Combining this protection with exposure to higher Treasury yields or a stronger dollar provides a strategic advantage.

Opportunities and Risks

Opportunities

• Improved Earnings Potential: Low expectations set the stage for upside surprises in corporate performance.
• Macro Tailwinds: Rising disposable income and potential disinflation offer a favorable backdrop for risk assets.
• Cheaper Hedging Costs: Affordable downside protection allows investors to safeguard portfolios against market turbulence.

Risks

• Treasury Yields: Sustained increases in yields could challenge HSBC's goldilocks scenario.
• Hawkish Fed Policy: A more aggressive rate stance may dampen risk appetite across asset classes.

The Bottom Line

HSBC's optimistic 2025 outlook underscores the importance of low earnings expectations, rising growth forecasts, and reduced political uncertainty as key drivers of market strength. However, the potential for rising U.S. Treasury yields remains a critical risk to monitor.