HSBC expects third-quarter corporate earnings to provide further support for global equity markets, citing improving profit forecasts, growing demand for artificial intelligence computing capacity and signs of increased AI monetisation.
In a research note published on Tuesday, Alastair Pinder, the bank’s head of emerging market and global equity strategy, maintained a positive outlook on equities despite rising bond yields and pressure on stock valuations.
The bank identified corporate earnings announcements and developments in AI-related revenue generation as potential factors influencing market performance during the reporting season.
S&P 500 Valuations Decline as Bond Yields Rise
Global equities have remained relatively stable despite recent selling in bond markets, with the S&P 500 approaching record levels.
However, HSBC noted that higher Treasury yields have affected equity valuations.
According to the bank, the S&P 500’s forward price-to-earnings ratio has declined 16.5% since late 2025. Additionally, 27% of companies in the index have experienced valuation multiple reductions exceeding 20% this year.
HSBC estimates that each additional 50-basis-point increase in the yield on the 10-year US Treasury note would reduce the S&P 500’s forward earnings multiple by a further 4.3%.
The bank also identified differences between headline market volatility measures and the implied volatility of individual stocks.
Average three-month implied volatility among S&P 500 constituents stands at the 85th percentile of its historical range, compared with the 35th percentile for the VIX index.
HSBC said this difference indicates that volatility at the individual company level remains elevated relative to the broader market measure.
Corporate Earnings Season Could Provide Additional Market Support
HSBC expects third-quarter earnings announcements to contribute to equity market performance, based partly on recent patterns during corporate reporting periods.
Since 2025, the S&P 500 has recorded average gains of 4% during earnings reporting windows, compared with broadly unchanged performance outside those periods, according to the bank.
Pinder anticipates another reporting season in which companies exceed analysts’ earnings expectations and raise their financial guidance.
HSBC noted that corporate guidance is improving at its fastest pace since 2021, providing support for its earnings outlook.
The bank also expects approximately $64 billion in customs refunds to contribute to corporate profit margins.
These factors underpin HSBC’s assessment that earnings growth could continue supporting equity markets despite pressure on valuation multiples.
Fixed-Rate Corporate Debt May Limit Earnings Exposure
HSBC expects higher interest rates to have a limited direct effect on corporate earnings, citing the structure of outstanding debt among S&P 500 companies.
According to the bank, approximately 80% of S&P 500 corporate debt consists of long-term borrowing with fixed interest rates.
This financing structure limits the immediate effect of changes in market interest rates on existing debt-servicing costs.
HSBC therefore distinguishes between the potential impact of rising Treasury yields on equity valuations and their effect on corporate profitability.
While higher bond yields could place additional pressure on price-to-earnings multiples, the bank expects the impact on earnings to remain relatively limited.
AI Computing Demand Remains Central to HSBC Outlook
Artificial intelligence investment remains a component of HSBC’s equity market assessment.
Pinder highlighted accelerating demand for AI inference, the process through which trained models generate outputs, alongside GPU rental prices that have remained firm.
The bank views these developments as indicators of continuing demand for AI computing infrastructure.
HSBC identified hyperscale cloud computing providers as its preferred near-term exposure to the expansion of AI computing demand.
The bank expects these companies to benefit from demand for processing capacity as AI applications continue to generate computing requirements.
Pinder also pointed to signs of AI monetisation as a factor supporting the bank’s outlook for technology-related earnings.
HSBC Maintains Positive Equity Outlook
HSBC’s assessment combines expectations of continued corporate earnings growth with recognition that higher bond yields could place further pressure on equity valuations.
The bank considers the recent reduction in forward earnings multiples relevant to current market conditions, while noting that individual stock volatility remains elevated.
Nevertheless, HSBC expects improving corporate guidance, potential margin support from customs refunds and continued AI computing demand to contribute to third-quarter earnings performance.
The bank maintains a constructive view of global equities, with hyperscale technology companies among its preferred investments within the AI sector.