HSBC Sees Q3 Earnings and AI Demand Supporting Global Equities

HSBC projects that third-quarter corporate earnings and sustained demand for artificial intelligence computing capacity will underpin global equity markets. In a research note released on Tuesday, Alastair Pinder, the bank’s head of emerging market and global equity strategy, held to a positive outlook for stocks despite increasing pressure on valuations from rising bond yields.

The bank noted that the S&P 500 has approached record levels even as bond markets have seen recent selling. However, higher Treasury yields have compressed equity valuations, with the index's forward price-to-earnings ratio falling 16.5% since late 2025. HSBC added that 27% of the index's constituents have faced valuation multiple cuts of more than 20% this year. The bank further calculated that a 50-basis-point rise in the yield on the 10-year US Treasury note would shrink the S&P 500’s forward earnings multiple by an additional 4.3%.

A divergence exists between broad market volatility measures and individual stock levels. The average three-month implied volatility for S&P 500 constituents sits at the 85th percentile of its historical range, whereas the VIX index remains at the 35th percentile. HSBC interpreted this gap as evidence that company-level volatility remains elevated compared to the broader market indicator.

The bank expects third-quarter reporting to boost market performance, citing historical patterns where the S&P 500 has averaged 4% gains during earnings windows since 2025. Pinder anticipates that companies will surpass analyst earnings expectations and upgrade financial guidance, noting that corporate guidance is improving at its quickest pace since 2021. Additionally, HSBC estimates that roughly $64 billion in customs refunds will support corporate profit margins.

Higher interest rates are expected to have a limited direct impact on corporate earnings due to the structure of outstanding debt. Approximately 80% of S&P 500 corporate debt consists of long-term borrowing with fixed interest rates, which caps the immediate effect of market rate changes on debt-servicing costs. The bank distinguishes between the pressure rising yields place on equity valuations and their relatively limited effect on corporate profitability.

AI investment remains a central part of HSBC's assessment. Pinder pointed to accelerating demand for AI inference and firm GPU rental prices as signs of continuing demand for computing infrastructure. The bank identified hyperscale cloud computing providers as preferred near-term exposures to this expansion, expecting them to benefit from processing capacity requirements. Signs of AI monetization also support the outlook for technology-related earnings.

HSBC maintains a constructive view of global equities, expecting improving corporate guidance, margin support from customs refunds, and continued AI computing demand to drive third-quarter performance.