UPDATE 1-HSBC turns bullish on US equities citing earnings momentum

HSBC on ​Tuesday upgraded its stance on ‌U.S. equities ​to "overweight" from "neutral, as earnings momentum and easing geopolitical risks turned the narrative back towards fundamentals. The British brokerage, however, downgraded ‌Europe ex-UK to "neutral", saying "European activity looks much weaker and is more at risk from higher energy prices."

Earlier this month, some Wall Street brokerages, including Citigroup and BlackRock Investment Institute, ‌which upgraded U.S. equities, have struck a similar note, favoring U.S. stocks over their ‌global peers. HSBC noted that nearly 30% of U.S. companies, so far, have reported earnings in the first quarter, 84% of which have beaten Wall Street's expectations by an average of 12%, above ⁠the five-year average.

"Buybacks ​are adding a ⁠steady, but important, tailwind. Announced S&P 500 buybacks total $430 billion year-to-date, up 20% year-on-year. Seasonality also helps, with ⁠Q2 typically strong," the brokerage added. HSBC also cautioned that "there are a few areas worth watching closely: ​first, oil and energy prices; second, the potential for sector rotation if energy ⁠prices remain elevated for an extended period. A durable ceasefire between the US and Iran would likely ⁠ease ​prices, especially if traffic through the Strait of Hormuz returns to normal."

Looking ahead, HSBC said it continues to prefer sectors with lower commodity input cost exposure, ⁠including banks, insurance, and technology. At the sector level, HSBC upgrades global Basic Materials to "overweight", reflecting ⁠strong earnings ⁠revisions and the view that commodities should remain supported by a broader commodity "squeeze," while downgrading both global health care and industrials sectors ‌to "neutral".

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)