HSBC CIO Jose Rasco on AI Repricing, Market Outlook for 2026, and Tech Revolution

Market Outlook: Bull vs. Bear Cases

• 📈 Wall Street is concluding a strong year with major averages up double digits, but questions linger about whether the rally can continue into 2026.
• 🐂 The bull case is supported by improving market breadth beyond tech, additional Fed rate cuts, and a strong consumer during the holiday season.
• 🐻 The bear case highlights fears that the AI trade has become overvalued, limited further Fed rate cuts, rising long-term bond yields, and a weakening housing market.

AI Repricing and Sector Rotation

• 💡 Jose Rasco of HSBC believes the AI repricing is not yet complete, suggesting that multiples for tech stocks are still too high given logistical constraints.
• ⚠️ A risk exists that this AI repricing could lead to a broader market sell-off, though HSBC does not anticipate this outcome.
• 🚀 The demand for AI is seen as a global phenomenon, which will continue to drive higher demand and potentially higher margins for chip and computing companies.

Economic Stability and Earnings Growth

• 📊 Despite concerns, HSBC forecasts an acceleration in earnings, with consensus numbers projecting strong growth for the coming year.
• 🌐 The economy is viewed as stable, with a potential mismatch between equity markets, the overall economy, and labor markets.
• 💰 Asset price inflation has occurred due to significant money inflows, contributing to some goods and services inflation, but this is considered stable.

The Future of AI and Tech Revolution

• 🧠 AI is characterized as a productivity-enhancing tool, not just for tasks like writing term papers, but across the balance sheet.
• 💡 The development of LLM models is seen as an entry point, similar to early internet technologies, with future AI winners yet to emerge.
• 🌍 This is anticipated to be a multi-year tech revolution, with companies leveraging AI for revolutionary changes across industries.
• 📈 While an AI overbuild is a risk in 3-5 years, the overall expenditure is deemed worthwhile for boosting productivity, drawing parallels to the Amazon effect's job creation.