According to Nicole Inui, head of equity strategy for the Americas at HSBC, the performance of the S&P 500 is currently being propelled by two primary factors: the burgeoning excitement surrounding artificial intelligence (AI) and shifts in government policies. Inui explained that the AI sector is driving the tech cohort higher, which constitutes roughly half of the S&P 500, while reduced policy uncertainty, particularly regarding tariffs, is supporting the remainder of the market. HSBC is a global financial services company, providing a range of banking and financial services to its clients.
Inui noted that since Liberation Day, both tech stocks and the rest of the market have rallied, but tech has significantly outperformed due to strong fundamentals. Earnings growth in the tech sector is tracking near 20 per cent for 2025, with positive momentum as earnings revision ratios increase. Conversely, earnings growth and momentum are slowing for the rest of the market, with financials being a notable exception. HSBC expresses greater confidence in the sustainability of the AI trade compared to further easing of policy uncertainty, citing the consistent positive impact of AI on company results.
HSBC’s base case scenario projects an S&P 500 target of 6400, predicated on 2025 earnings growth of 9 per cent, up from a previous estimate of 6 per cent. This forecast anticipates a moderate slowdown to 8 per cent year-over-year growth in the second half of the year, as the impact of tariffs on corporate profits is partially offset by continued strength in the tech sector. The firm’s bull case scenario envisions the S&P 500 reaching 7000, driven by accelerated AI adoption and suppliers absorbing the majority of tariff costs, leading to earnings growth of 14 per cent in the second half of the year.
Conversely, HSBC’s bear case scenario forecasts an S&P 500 target of 5700, based on tariffs negatively impacting corporate profits and increasing inflation, which would limit Federal Reserve rate cuts. In this scenario, earnings growth would slow to 3 per cent as companies struggle to pass on higher tariffs to consumers, and higher interest rates would cap valuations.
