HSBC downgrades US stocks, turns bullish on EU equities

HSBC on Monday downgraded US equities, citing uncertainty around tariffs, while turned bullish on European stocks following boost from Germany loosening its fiscal reforms.

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The brokerage lowered US equities to “neutral” and raised rating on European stocks, excluding UK stocks to “overweight” from “underweight.” The Trump administration’s massive moves on trade and other policies have injected uncertainty, while a proposed $1.2 trillion European fiscal bazooka and the emergence of China as the tech race leader are marking a potential turning point for investor capital away from the United States.

The S&P 500 has pulled back about 6.1% from its February 19 record high on worries that the trade war will hurt corporate profit and slow growth.

“It is important to stress that we are not turning negative on US equities - but tactically, we see better opportunities elsewhere for now,” said HSBC's Global Equity Strategist Alastair Pinder said.

Morgan Stanley Equity Strategist Michael Wilson believes the S&P 500 could fall another 5% to 5,500 points by mid-year, before ending the year at around 6,500, which is a 12.7% upside from the benchmark index’s last close.

“The path is likely to be volatile as the market continues to contemplate these growth risks, which could get worse before they get better,” Morgan Stanley’s Wilson said in a note on Monday.