Equity analysts at HSBC have adjusted their outlook on US stock markets after the onset of Trump’s second term. The firm has upgraded Europe (excluding the UK) to overweight while downgrading the US to neutral.
They believe that the US’s fluctuating support for NATO and Ukraine has catalysed a key moment for the eurozone, particularly with anticipated fiscal stimulus from Germany. However, concerns remain about Germany’s ability to enact these reforms, which may prove challenging.
Market Trends And Timing
In broader market trends, the DAX fell 1.75%, continuing its decline after reaching a record high last week. This raises questions about HSBC’s timing in its market assessment.
HSBC’s shift in focus suggests they now see stronger prospects across the eurozone compared to the US. Their adjustment comes at a time when Washington’s position on international commitments seems less predictable, which they argue could strengthen Europe’s internal cohesion. Anticipated fiscal measures from Berlin are another factor supporting their stance. However, the execution of these policies remains uncertain, given the complexities of Germany’s political climate.
The recent movement in the DAX complicates the picture. A pullback of 1.75% following a prior record high introduces an element of doubt about whether HSBC’s reallocation is well-timed. If the eurozone had such an obvious advantage, one might expect its flagship index to display more resilience. That said, short-term fluctuations do not necessarily invalidate the broader thesis.
Currencies also cannot be ignored. If European equities are to outperform, movements in the euro matter. A stronger euro often drags on export-driven industries, while a weaker one benefits them. The dollar, on the other hand, remains a wild card. Any potential shifts in US policy could create volatility in currency markets, altering the relative appeal of different regions for global investors.
For those with a focus on derivatives tied to major indices, these adjustments in outlook and market movements require careful navigation. Adjustments to positioning might be needed if the market begins to validate HSBC’s shift toward Europe. Whether the recent DAX decline signals a deeper retracement or is merely a pause in an ongoing move higher is a question that needs answering.
Policy And Market Reactions
Market reactions to policy changes can be unpredictable. Germany’s capacity to implement new fiscal stimulus remains an open question. If it falls short of expectations, the bullish case for European equities could weaken. Meanwhile, across the Atlantic, any unexpected shifts in the White House’s approach to international relations or trade agreements could reshape investor sentiment faster than anticipated.
The coming weeks should provide greater clarity. Until then, it will be necessary to monitor whether European market strength materialises as HSBC suggests or whether the timing of their call proves premature.
