HSBC Outlook 2025: Federal Reserve cuts interest rates three times and is bullish on the US market and gold.

HSBC, in its latest global multi-asset strategy report, pointed out that despite facing many challenges in the recent market, including the development of artificial intelligence (AI), trade tariffs, and the weak performance of large tech stocks, the fundamentals of the global economy remain strong. HSBC maintains its "Goldilocks" economic outlook for the first half of 2025 (H1), believing that markets will continue to see broad gains in interest rates and risk assets. HSBC notes that despite the heated discussions in the market on AI, trade tariffs, and other issues, the core focus remains on economic growth and inflation dynamics. Particularly in the U.S. market, economic growth expectations remain strong, while inflation pressures are expected to further ease. HSBC predicts that the US anti-inflationary forces will gradually manifest between January and April 2025, providing continued support to the market. Market Outlook and Asset Allocation Strategy From a technical analysis perspective, HSBC's Valuation Adjustment Momentum Score (VAMOS) shows strong performance in stocks in Developed Markets (DM) and Emerging Markets (EM), EM credit bonds, and high yield (HY) credit bonds, while maintaining a cautious stance towards DM sovereign bonds and investment grade (IG) credit bonds. Additionally, HSBC's machine learning model (MARViN) also shows a preference for stocks, especially in the current market environment where stocks are more attractive compared to DM sovereign bonds. In terms of market sentiment, HSBC's comprehensive sentiment index is currently at a neutral level. Although the buy signal from early January has disappeared, some survey-based sentiment indicators are approaching the reverse buy zone. This indicates that market sentiment has not shown a clear shift and investors still hold a certain level of optimism towards the market. HSBC believes that liquidity is one of the most important factors in the recent market. The latest quarterly refunding announcement from the U.S. Treasury Department shows that the size of treasury auctions will remain stable in the coming quarters, providing stable liquidity support to the market. This news is a positive signal for the market, indicating that in the first half of 2025, the market is unlikely to face risks of liquidity tightening. Based on the above analysis, HSBC maintains its multi-asset allocation view, continuing to overweight U.S. stocks, high yield credit bonds, EM credit bonds, rate bonds, and gold. Meanwhile, HSBC holds a underweight position on IG credit bonds and oil. In DM sovereign bonds, HSBC prefers to hold long-term bonds, especially U.S. and UK bonds, while maintaining a cautious stance towards German Bunds and Japanese JGBs. Global Market Dynamics Furthermore, HSBC's economists and strategists have conducted in-depth analysis of global market dynamics. Despite the temporary easing of trade tariffs with neighboring countries in the U.S., trade tensions may still have an impact on global economic growth. HSBC expects the Fed to cut rates by 75 basis points in 2025, with 25 basis points each in June, September, and December policy meetings. For Emerging Markets, HSBC's strategists prefer markets with strong domestic fundamentals and well-coordinated monetary and fiscal policies. In the stock market, while some markets may face pressure, corporate earnings are expected to mitigate potential adverse effects. HSBC remains optimistic about the U.S. stock market, while believing that European stock markets may be somewhat affected by geopolitical and trade-related risks, but currency devaluation and a scenario of long-term high interest rates may support some sectors and markets. In fixed income, HSBC has a positive view on U.S. treasuries, considering their high real yield makes them more attractive relative to other regions and asset classes. In credit bonds, HSBC holds a neutral stance on IG credit bonds and a slightly bearish stance on HY credit bonds. In the foreign exchange market, HSBC believes that the U.S. dollar is likely to strengthen further, as the differences in monetary policy between the U.S. and other countries will continue to support the dollar. Gold remains well supported by a combination of fiscal, economic, geopolitical, and trade risks. Conclusion HSBC's latest report emphasizes that despite many uncertainties in the market, the fundamentals of the global economy remain strong, especially in the U.S. market. With the gradual manifestation of anti-inflationary forces and stable liquidity support, markets are poised to continue seeing broad gains in the first half of 2025. Lastly, HSBC maintains its multi-asset allocation view, advising investors to remain overweight on stocks and credit bonds in the current market environment, while maintaining a cautious stance towards sovereign bonds and oil.