Here are three big things the market is getting wrong about U.S. stocks, says this bank

HSBC strategists, led by Max Kettner, contend that current market expectations for U.S. second-quarter earnings are too low. Furthermore, they assert that the U.S.-China tariff debate has largely receded as a market concern, observing a diminished sensitivity of risk assets to trade-related headlines following the recent pause.

Analysis

HSBC strategists, led by chief multi-asset strategist Max Kettner, have articulated a contrarian, moderately positive outlook for U.S. stocks, contending that market expectations for second-quarter earnings are excessively low. This suggests a potential for widespread positive earnings surprises as the reporting season commences. Concurrently, the bank's analysis indicates a significant shift in market drivers, positing that the U.S.-China tariff debate has been 'thoroughly pushed to the background' following the recent trade pause. This view is supported by their observation that recent price action in risk assets is demonstrating a 'smaller sensitivity' to tariff-related headlines, implying that investors are now focusing on other fundamental factors over geopolitical trade friction.

Key Decisions for Investors

• Investors should consider positioning for potential upside surprises during the Q2 earnings season, as HSBC's analysis suggests current consensus forecasts are overly pessimistic.
• Re-evaluate the weight given to U.S.-China trade policy as a primary risk factor, as market sensitivity to tariff headlines appears to be diminishing.
• Focus on identifying U.S. companies with strong fundamentals that are likely to beat suppressed earnings expectations, as they may experience a disproportionately positive stock price reaction.