HSBC Strategist Max Kettner: Equity Markets Have Rallied Too Much

Market Rally Concerns

• 💡 Max Kettner of HSBC believes equity markets have rallied too much, not fully pricing in downward momentum in GDP and growth expectations.
• 🎯 Cyclical stocks, both globally and in the US, are seen as having gotten ahead of themselves.
• 📈 High-yield credit spreads, particularly in the US, have experienced a remarkable tightening that Kettner suggests has gone too far.

Broad-Based Economic Weakness

• ⚠️ Regional Fed surveys, new order expectations, CEO confidence, capex intentions, and labor market conditions are all approaching levels seen during the GFC, COVID, or financial crisis.
• 📊 The weakness observed in survey data is now too widespread to be dismissed as purely politically driven.
• 📉 Kettner fears this broad-based weakness will soon manifest in hard economic data.

Trade Policy and Economic Scarring

• ❓ A full reversal of trade policy or tariffs is considered highly unlikely, but if it were to occur, markets might look past upcoming negative hard data.
• 💥 Kettner argues that significant economic scarring has already occurred due to past uncertainty, independent of potential future tariff changes.

Labor Market Concerns

• ⚠️ An upside momentum in US jobless claims is anticipated in the next month or two, potentially influenced by effects from earlier in the year and residual seasonality.
• 📉 Cracks in the labor market are a concern, not necessarily over the next few quarters, but in the immediate short term.