Economists at HSBC think equities can still push higher over the coming three months thanks to fiscal stimulus and strong corporate earnings. What’s more, COVID-19 related risks remain and investors should stay diversified.

“We think equities can rally further over the coming few months, although clients should stay diversified in light of covid-related risks.”

Fiscal stimulus and improved corporate earnings should push the market higher. At the time of writing, 38% of companies in the S&P 500 have reported quarterly earnings with over 80% beating expectations. We remain overweight US, UK and Asian equities, focussing on cyclical sectors like materials, industrials and financials.”

“Over the next 3-6 months, we have upgraded European High Yield bonds to Overweight as we expect corporate default rates to fall and for these bonds to benefit from the corporate earnings recovery. We are already overweight US Investment Grade and High Yield bonds.”

“Global economic recovery prospects are bolstered by vaccine rollout and fiscal stimulus. We remain pro-risk in our investment positioning as markets exposed to cyclical sectors can continue to perform well even if bond yields rise. Value stocks can also do well in this environment.”

Given the comments by HSBC the only reservations from our side is the fact that earnings season for big tech showed an excellent overall performance in 2020. Most companies had exceeded expectations, however with the positive results we saw many shares actually decline. Other contributing factors played a role such as Netflix’s declining subscription numbers for Q12021. This does seem to indicate a change. Given the tech rally in 2020 it is conceivable that these results were already priced in which could explain the decline. We would rather look to sectors where share prices are trading at a discount with strong financial supporting them as the US enters a restriction free summer.