HSBC strategist warns: US stocks may face a risk of correction before the midterm elections. Investors should consider reducing their positions after the end of earnings season.

HSBC Holdings' Chief Multi-Asset Strategist Max Kettner said that equity investors should consider reducing their positions after the end of this financial reporting season. He warned that market sentiment is overheated, the impact of fiscal stimulus is weakening, and uncertainty from the US midterm elections could trigger a stock market pullback. Kettner, who has maintained a view of "maximum overweight" for stocks since mid-March, said that current market positions and investor sentiment are approaching levels seen during the economic reopening rally of 2021, and some US credit card consumption data has shown a slowdown in consumer spending. He noted that the scale of fiscal stimulus from the "Big Beautiful Bill" is comparable to measures taken during the 2009 financial crisis, but the stimulus effects are mainly concentrated in the first half of 2026, meaning that future fiscal support will be limited. In an interview, Kettner said, "I think that after the midterm elections, which is about a month to a month and a half after the end of the financial reporting season, it may be time to slightly ease off the gas pedal and reduce equity positions." When discussing the risks of the midterm elections, Kettner pointed out that current polls show a neck-and-neck race for control of the US Senate (50-50), which adds more uncertainty to the outlook for AI and data center regulation. He said that this could not only affect semiconductor or hyperscale cloud computing companies, but also put pressure on the entire technology sector. However, he believes that this adjustment will provide a buying opportunity at lower levels. He added, "This does not mean a bear market is starting, but is it enough to trigger a 5% to 10% pullback due to seasonal factors and elevated market positions before the midterm elections in September to October? I think it's possible. Afterwards, after the midterm elections, it may be time to buy again." Additionally, Kettner said that within the technology sector, he is still most bullish on hyperscale cloud computing companies. He believes that the market's expectations for these companies are not high. Companies only need to avoid further increasing their capital expenditure expectations or sending signals that future cash flows may not continue to be negative in order to be catalysts for stock price growth.