HSBC's Max Kettner on the Surprisingly Hated Equity Rally and Economic Reacceleration

The Sentiment of the Equity Rally

• 💡 The most surprising aspect of the current equity rally is how hated it has been, according to HSBC's Max Kettner.
• 📉 Long-only investors have significantly cut their overweight in equities since "liberation day" and have not returned to previous levels.
• ⚠️ High-yield credit investors have downgraded their stance to neutral, indicating a broadly bearish sentiment despite the market's upward movement.

Economic Indicators and Reacceleration

• 📈 High-frequency indicators for the US show a frontloading of activity in March and April, followed by a dip in May and June.
• ⚡ Since the end of June, there has been a noticeable pickup in activity, evidenced by same-store retail sales, credit card spending, and Visa's spending momentum index.
• 📊 The weekly staffing index has been rising for the past 7-8 weeks, contributing to an increase in the Fed's aggregate weekly activity proxy.
• 🚀 These indicators suggest the US economy may be slightly reaccelerating, particularly relative to very bearish consensus expectations for Q3.

Market Outlook and Expectations

• 🎯 The current market narrative suggests lower rates from the Fed, not due to outright economic weakness, but as an insurance policy.
• 🚀 Aggressive market segments like crypto, IPOs, and meme stocks are still running, despite the overall hated sentiment of the rally.
• 📈 The potential for economic reacceleration and the broadening of the equity market suggest an upside surprise to current price targets.
• 🗓️ The next two weeks are particularly important, with the upcoming payrolls report in 10 days, potentially leading to a squeeze higher across risk assets.