What Would Make HSBC Bearish? Tech Slowdown and Market Sentiment the Biggest Concerns

Overview

HSBC analysts discuss what factors may prompt them to shift their view to bearish under their current aggressive risk appetite stance. The report argues that while multiple potential risks exist, the most likely factors to trigger bearishness are tech spending slowdown and overly optimistic market sentiment rather than earnings expectations, geopolitics or interest rate hikes.

Core views

HSBC indicates that risk assets are currently stable, mainly due to strong Q1 earnings, index concentration masking market vulnerabilities, and reduced sensitivity to rate changes in the US. They believe the most likely factors to trigger bearishness are: 1) overly optimistic market sentiment and positioning, especially if positive Middle East news triggers broader equity and credit rally potentially triggering sell signals; 2) slowdown in technology and AI spending, adoption deceleration or memory price declines. The report highlights that technology and AI have become core components of US and emerging market equities, and their underperformance could negatively affect household wealth and consumption. The correlation between tech stock performance and consumption has strengthened; tech stock declines could lead to reduced wealth effects, affecting consumption and creating a negative feedback loop.

Analysis framework

HSBC employs a multi-dimensional analysis framework to assess risks from five perspectives: earnings expectations, geopolitics, interest rate trends, market sentiment, and technology trends. They first rule out earnings expectations, geopolitics and interest rate hikes as primary bearish factors since these are currently priced in or have limited impact. Then they focus on market sentiment and technology trends, using historical data and current market conditions to suggest current market sentiment may be excessively optimistic while tech spending and memory prices are potential risk points. The report uses charts and data to support its analysis including earnings expectations, interest rate trends and technology-related market performance.

Key data

• Q2 2026 US Corporate Earnings Expectations20.8%Easier to exceed expectations than previous quarter, not a major risk
• 10-year US Treasury YieldDanger ZoneCurrently not significantly impacting risk assets
• Memory Price TrendContinued rise through end-2026China's DDR5 market catch-up may affect 2027 prices

Impact & implications

A slowdown in technology and AI spending would put downward pressure on US and emerging market equities, subsequently affecting household wealth and consumption. HSBC believes the enhanced correlation between tech stock performance and consumption means tech declines could reduce wealth effects, affect consumption and create a negative feedback loop. Excessively optimistic market sentiment or widespread rally triggered by positive Middle East news may trigger sell signals, causing risk asset corrections.

Risks

• Tech and AI spending slowdown
• Memory price decline (China's DDR5 market catch-up)
• Overly optimistic market sentiment triggering widespread rally and sell signals

What to watch

• Trends in technology and AI spending
• Memory price changes (especially China's progress in DDR5 market)
• Changes in market sentiment triggered by Middle East geopolitical developments