HSBC Strategist: Market Bottom Not Yet Here Despite Oversold Conditions

Market Conditions and Technicals

• 📉 Market conditions are currently oversold, with many shorter-term indicators stretched on the downside.
• 📊 Trend-following indicators are showing equities as almost max short, similar to levels seen in June and August 2022.
• ⚡ A technical bounce of 4-5% is possible in the short term due to these oversold conditions.

Missing Fundamental Underpinning

• ⚠️ The primary concern is the lack of fundamental underpinning to justify a market bottom.
• 🎯 While technicals suggest a bounce, the fundamental picture is not yet supportive of a sustained recovery.
• 💡 The policy narrative volatility is expected to persist, contributing to ongoing market uncertainty.

Recession Pricing and Uncertainty

• ❓ A 90-day extension on deadlines, even if granted, is unlikely to significantly boost corporate capital expenditure due to lingering uncertainty.
• 📊 The key question is not whether a recession will occur, but at what point it is being priced into the market.
• 📈 Cyclicals versus defensives globally and in the US are not yet pricing in recession odds sufficiently to signal a bottom.

Forecast Revisions and Market Breadth

• 🔍 There remains an 8 percentage point gap between top-down forecast revision momentum and equities versus rates/cyclicals versus defensives.
• 📉 This gap indicates that cyclical assets still have significant room to unwind their underperformance.
• ⚠️ Even with recent sell-offs, the equal-weighted S&P 500 shows the average stock was nearly flat year-to-date before the last two days of trading, suggesting the broader market hasn't fully priced in a recession.