HSBC anticipates the stock market rally to remain secure until at least the second half of 2024. Strategists highlight that with positioning still near multi-year lows, enhanced carry opportunities due to the steep backwardation in the futures curve, positive signs in global manufacturing activity, and improved supply/demand dynamics, there is a likelihood of near-term outperformance.
Despite the optimistic global growth outlook increasing inflation concerns, HSBC remains of the opinion that it’s premature to worry about inflation impacting the rally. HSBC emphasizes that a crucial consideration for the markets is the potential for rate cuts by the Fed and other central banks.
“Indeed, should they proceed with rate cuts, we anticipate a significant relief rally, given that real money investors remain predominantly neutral across almost all asset classes,” the strategists highlight.
However, they advise caution regarding the latter half of 2024, as challenges may arise, especially concerning whether reducing rates to 2.5% is achievable or if a pause or halt, reminiscent of the mid-1990s, becomes necessary.
They further note that these concerns are likely to affect risk assets but anticipate them emerging “at the earliest, in the second half of the year.”
Despite acknowledging these potential risks, HSBC maintains its largest overweight position in oil, alongside other risk assets.
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