Max Kettner, chief multi-asset strategist at HSBC Holdings Plc., said strong tech earnings are cushioning U.S. equity markets against rising bond yields.
This shift in investor sentiment is critical because bond yields typically pressure stock valuations. When earnings growth outpaces the cost of borrowing, it allows equities to maintain a bullish trajectory even in a high-interest-rate environment.
Speaking on Bloomberg Surveillance on Friday, Kettner said the strength of tech earnings made investors care less about higher yields. This perspective follows a period of significant growth in the technology sector, where 84% of S&P 500 companies beat Wall Street estimates in the latest earnings season [1].
Kettner said stocks can rally further because a powerful recovery in earnings and low market positioning levels outweigh the threat from rising bond yields. He said the current backdrop of improving risk and easing tensions in the Middle East creates a supportive environment for equities.
Despite the positive momentum, Kettner advised against premature exits. He said investors should not rush to lock in gains despite improving market sentiment. The strategist said the combination of fundamental earnings strength and the fact that many investors remain under-allocated to stocks provides a buffer for further growth.
The current market dynamics suggest a decoupling where the traditional inverse relationship between yields and stocks is temporarily weakened. Kettner's outlook emphasizes that as long as the underlying corporate profitability remains robust, the equity market can withstand the volatility associated with bond market fluctuations.
“The strength of tech earnings made investors care a little less about higher yields.”
The analysis suggests that fundamental corporate growth is currently the primary driver of market resilience. By prioritizing earnings beats over macroeconomic headwinds like bond yields, investors are signaling confidence in the long-term productivity of the tech sector, potentially altering the traditional risk-assessment model for U.S. equities.
