If markets sell off again, get ready to buy U.S. stocks, says HSBC

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It’s Nvidia earnings day, with stock futures, notably tech, and the AI leader’s shares rising ahead of Wednesday’s open. It’s fair to say a lot is riding on those results, while the Fed’s Jackson Hole end-week gathering is keeping others on edge.

Weighing in on the recent pullback, Goldman Sachs last week?told clients ?that the market had shifted from buy the dip, to sell the rally, and flagged a change in “tone and sentiment.”

Considering the stock run-up seen so far in 2023, and after last year’s painful losses, it doesn’t seem unusual that investors may want to cash in on some gains.

There’s more dip advice in our?call of the day?from a team at HSBC led by chief multi-asset strategist Max Kettner, who advises against investors getting tempted by the broad-based sell-off across major asset classes over the past two weeks. That’s as they note the pullback has been “extremely tough ” to hedge against.

“We wouldn’t jump right back in just yet — after all this week’s US. Treasury and [inflation-protected bonds] supply and Jackson Hole’s focus on ‘Structural Shifts in the Global Economy’ could easily result in another broad-based sell-off, in our view,” the HSBC team told clients.

Now should that happen, they include an exception to that advice, suggesting investors use any further selling to scale up further in U.S. equities.

“Investment-grade, high-yield and even emerging market credit has held up much

better comparatively in this correction. So we’d see a bigger recovery potential

in U.S. equities, given our unchanged view on growth, inflation and fundamentals overall,” said the team.

The strategists note that “fundamentally, nothing’s changed in the last two weeks — rather the U.S. economy is going from strength to strength,” they say. That’s against the backdrop of a “dramatic” shift of near-term U.S. GDP growth expectations.

“What’s changed of course is the market’s reading on this. Stable growth, range-bound yields and continued disinflation have been the recipe for a goldilocks market environment so far. But with growth defying recessionary expectations and long-end yields pushing to new cycle-highs, this has now been severely disrupted,” said Kettner and co.

The team say they are closely watching both U.S. bond supply and Jackson Hole, alongside sentiment and positioning that has overall become more neutral in the past two weeks. “We still don’t think the correction since late-July will be a large-scale sell-off, though, given that positioning among discretionary investors is fairly low again,” they said.

Read:?Wall Street blamed zero-day option traders for a sudden stock-market selloff. But a BofA team says they got it wrong.

The markets

Stock futures?SPX ?COMP ?are rising after a bounce for equities fizzled out on Tuesday. Treasury yields?BX:TMUBMUSD10Y ?BX:TMUBMUSD02Y ?are dropping after data?showed weak economic activity . Asia stocks were mixed, with China’s CSI 300?XX:000300 ?lower.

Read:?Rise in Treasury yields is almost entirely due to one factor, strategist says

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