HSBC has forecast that third-quarter corporate earnings will bolster global equity markets, highlighting improving profit forecasts, an increase in demand for artificial intelligence (AI) computing capacity, and signs of enhanced AI monetization. In a research note released on Tuesday, Alastair Pinder, the bank’s head of emerging market and global equity strategy, expressed a positive outlook on equities despite the rise in bond yields and challenges to stock valuations.
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The bank pointed to corporate earnings announcements and developments in AI-related revenue generation as key factors potentially influencing market performance during the reporting season.
Global equities have demonstrated relative stability despite recent selling pressure in bond markets, with the S&P 500 nearing record highs. Nonetheless, HSBC noted that the increase in Treasury yields has pressured equity valuations. The bank reported that the S&P 500's forward price-to-earnings ratio has decreased by 16.5% since late 2025, and 27% of companies within the index have seen valuation multiples drop by over 20% this year. HSBC estimates that a 50-basis-point rise in the yield on the 10-year US Treasury note would further decrease the S&P 500's forward earnings multiple by 4.3%.
Moreover, HSBC highlighted discrepancies between headline market volatility measures and the implied volatility of individual stocks. The average three-month implied volatility among S&P 500 constituents is currently at the 85th percentile of its historical range, contrasting with the 35th percentile for the VIX index. This suggests that individual stock volatility remains high relative to the overall market measure.
HSBC anticipates that the upcoming third-quarter earnings announcements will further support equity market performance, drawing on patterns from previous corporate reporting periods. Since 2025, the S&P 500 has achieved an average gain of 4% during earnings reporting windows, compared to little change outside of those periods. Pinder expects that companies will again surpass analysts' earnings forecasts and enhance their financial guidance. He also noted that corporate guidance is improving at its fastest rate since 2021, which is supportive of the earnings outlook. Additionally, the bank expects around $64 billion in customs refunds will aid corporate profit margins.