Markets continue to move from one extreme to the other, HSBC strategists noted Tuesday. Just a month ago, the investment bank advised investors to increase exposure to risk assets due to dominating concerns over stagflation and potential US growth decline.
But while recent negative surprises in US activity have led some to question the strength of the US economy, this could be positive for HSBC’s Goldilocks view, strategists said.
“GDP nowcasts now ‘only’ suggest 3.5% growth for Q2 – almost twice as high as consensus and potential growth. But what it does do is reduce some inflation and stagflation concerns,” the team wrote in a note.
HSBC said its fundamental models still suggest further strength in risk assets, including equities over developed market sovereigns, high-yield (HY) over investment-grade (IG) credit, and cyclical stocks over defensives.
They also highlight that the Q1 reporting season has been strong globally, with improving sentiment in earnings calls.
“We place little weight on recent consumer sentiment data given how poor of a predictor of actual activity they’ve been in recent years. Sentiment and positioning are also still supportive of a risk-on view, as are our machine-learning models,” they added.