HSBC names risks to global market resilience
Global markets have demonstrated resilience in recent years to inflation, tariffs, geopolitical conflicts and other adverse factors. At the same time, HSBC analysts identified several risks that could end this trend: higher corporate taxes, renewed growth in private-sector debt, a change in the relationship between stocks and bonds, and markets losing their sense of support from central banks.
CNBC reports, citing an HSBC research note. The bank said that the disappearance of the perception that central banks support markets could negatively affect assets. At the same time, it called such a scenario difficult to imagine, especially in the United States, where the stock market, household wealth and financial conditions are closely interconnected.
Taxes, debt and stocks
According to HSBC, the biggest risks are concentrated in the United States because of the country’s significant weight in global equity and credit markets. Higher corporate taxes, which would reduce companies’ profitability, could put pressure on markets.
Inflation approaching or falling below its target level could restore the negative correlation between stocks and bonds, the bank believes. Under such a relationship, bond prices rise when stocks fall. This could potentially prompt investors to reduce the share of stocks in their portfolios and increase pressure on their valuations.
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HSBC also named a possible renewed increase in the private sector’s debt burden as another risk. At the same time, the bank noted that this indicator is currently at its lowest levels in several decades.
Factors supporting market resilience
In HSBC’s view, markets have been supported by strong corporate earnings and economic growth, primarily in the United States. Consensus forecasts repeatedly underestimated company earnings, while resilience extended beyond the technology sector and artificial intelligence sphere. U.S. corporate tax rates, according to the bank, remain close to their lowest levels in several decades.
HSBC also cited rising wealth among U.S. households, large amounts of cash and cash equivalents, and a broader range of response tools available to central banks. The Federal Reserve has around 20 potential tools, programs and support mechanisms, while the European Central Bank has more than a dozen.
Deutsche Bank also questioned the long-term sustainability of this situation. The bank said that equities and credit assets insufficiently account for a stagflation shock that is increasingly being reflected in rate markets.
