Any pullback in stocks would be brief: HSBC’s Kettner

Investing.com -- Any pullback in stocks should be short-lived despite a wave of negative headlines, according to HSBC strategist Max Kettner.

In a recent note to clients, Kettner pointed to persistent buy signals from sentiment and positioning indicators, suggesting that risk assets could remain resilient even amid deteriorating news flow.

Over the past two weeks, equity markets have largely traded in a range, with brief dips following tariff-related announcements quickly reversing.

According to Kettner, part of this reaction “is the belief that tariffs are mainly a negotiation tool.” That assumption, he added, has helped prevent a repeat of the sharp sell-offs seen in March and April.

Still, market sentiment remains cautious, with “bad news everywhere you look,” the strategist noted.

“From the U.S. debt downgrade and concerns around U.S. fiscal sustainability, renewed geopolitical jitters, fears around the long-end bond sell-off globally, potential headwinds from the Big Beautiful Bill, to more tariff announcements - the recent news flow has been anything but supportive,” he continued.

Yet, he sees reasons for optimism, pointing out that both long-only and systematic investors continue to show “subdued participation.” Kettner argues that the ongoing presence of tail risks, such as Section 899 or extended tariffs, may actually help limit excessive bullishness, keeping positioning light and allowing markets to digest setbacks without broader capitulation.

“All that will likely keep our sentiment and positioning indicators thoroughly in check – and in turn allow dips to remain short-lived,” he wrote.

Kettner also highlighted that growth expectations have already been revised downward across markets. “Even fundamentals might not be as bad as markets and indeed ourselves have feared just a month or two ago,” he added, referencing signs of stabilization in both U.S. GDP and earnings forecasts.

HSBC remains Overweight high-yield credit and emerging market (EM) debt, as well as European and EM equities. The bank is Underweight U.S. Treasuries and Japanese government bonds, and maintains a preference for European non-core assets and gold, while remaining Underweight oil.

In sum, while the market narrative remains clouded by downside risks, Kettner believes that existing positioning and sentiment dynamics should help cushion any near-term correction.