HSBC Sees a Surprise Driver for the Next Stock Rally Moz Farooque ACCA Wed, October 14, 2026 at 2:16 PM EDT HSBC -1.27% ^GSPC -1.30% Trade HSBC on Coinbase Trading disclosure Trading disclosure The above button links to Coinbase. Yahoo Finance is not a broker-dealer or investment adviser and does not offer securities or cryptocurrencies for sale or facilitate trading. Coinbase pays us for certain activity generated through this link. Prices displayed are informational.
The S&P 500's third-quarter earnings picture looks stronger than it really is.
Consensus estimates point to roughly 30% earnings growth, but HSBC says much of that strength is concentrated in semiconductors and energy.
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Strip out the Magnificent Seven, technology and energy, and the rest of the S&P 500 is expected to grow earnings by just 5% year over year, down sharply from 14% in the prior quarter.
That weaker backdrop could actually help the market.
HSBC strategist Nicole Inui argues that lower expectations give several unloved sectors more room to beat forecasts and potentially pull more stocks into the rally.
Beneath the surface, expectations are considerably less demanding, Inui wrote.
Only five of the 11 S&P 500 sectors are expected to post at least 10% earnings growth in the third quarter, compared with nine sectors in the previous quarter.
HSBC sees the best chance for upside surprises in areas that have not led the market.
Those include financials, consumer discretionary, utilities and real estate.
If the U.S. economy continues to hold up better than expected, companies in those sectors may have an easier time clearing subdued earnings estimates.
For much of the recent rally, gains have been concentrated in a relatively narrow group of technology and AI-linked stocks. A stronger showing from financials, real estate or consumer names would spread earnings growth across more of the index.
That would make the rally less dependent on a handful of mega-cap companies.
The S&P 500 is trading at roughly a 4% discount to its five-year average forward price-to-earnings multiple, according to the firm.
That does not make every sector cheap, but it means lagging groups could have room to re-rate if earnings come in better than expected.
What stands out to me is that the bullish part of HSBC's argument comes from weak expectations, not spectacular forecasts.
Investors do not necessarily need financials or real estate to suddenly produce technology-like growth.
