S&P 500: Earnings strength offsets yield headwinds – HSBC

HSBC Asset Management notes that global equities, including the S&P 500, have shown resilience as the index inches toward the 8000 level despite high Oil prices, a hawkish Federal Reserve and surging bond yields. The team highlights exceptional profit growth in 2026, but warns that EPS growth could cool in 2027 and remains concentrated in technology and commodities.

Equities climb despite yield pressures

"The Covid recovery was about huge doses of policy stimulus. The 2022 commodity shock dissipated as global economies rewired supply chains. And the post-Liberation Day experience has been a textbook example of fleeting geopolitical risk premiums."

"Markets have faced greater uncertainty over the past few years, contending with a once-in-a-century pandemic, commodity price spikes, and a breakdown in the established rules-based global order. Yet they have shown impressive resilience. This is being demonstrated once again as the S&P 500 inches toward the 8000 level despite the headwinds of high oil prices, a hawkish Fed, surging bond yields and an increasing focus on the existential risks posed by AI."

"What’s more, sticky bond yields pose a constant threat to the valuation arithmetic – the opportunity cost of buying stocks is now higher. We are seeing pockets of weakness in more rate sensitive parts of the market – the Russell 2000 is down by nearly 10% from its August highs, and lower-tier credit spreads have gapped out."

"This doesn’t necessarily mean the coast is clear. A market derating tells us that higher bond yields and geopolitics do matter. EPS growth might cool in 2027 and could be downgraded if the AI capex bonanza disappoints."

"But for the time being broader corporate fundamentals look robust enough to weather the storm."