‘The Market Flashed Its First Real Buy Signal Since Liberation Day,’ Says HSBC

Max Kettner, a strategist at investment firm HSBC (HSBC), believes that the stock market may have just flashed its first real buy signal since “Liberation Day.” Indeed, he expects last Monday’s closing low of 6,343 to act as a near-term bottom. He also sees improving conditions in risk assets like stocks and credit markets. Notably, this view is similar to others on Wall Street, such as Ed Yardeni of Yardeni Research, who also believes that the market has already bottomed and is still targeting 7,700 for the S&P 500 (SPY) by year-end.

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Interestingly, Kettner was cautious back in March despite strong economic data, such as solid labor market trends and steady consumer spending. However, he recently changed his stance after the market’s positioning changed significantly. In particular, both systematic and discretionary investors increased their hedging activity, which has created conditions that have historically pointed to a turning point. Because of this, Kettner now sees a more supportive setup for risk assets that are backed by technical indicators such as momentum, put-call ratios, and sentiment surveys, all of which suggest investors are heavily hedged.

Nevertheless, he warned that inflation remains a key risk. Specifically, the upcoming core CPI reading could determine whether the recent momentum holds. If inflation comes in higher than expected, it could push Treasury yields closer to what HSBC calls the “danger zone,” which is around 4.5% on the 10-year yield. And since the market is already close to that level, there is little room for error. If yields rise further, Kettner cautioned that most asset classes could come under pressure, and that there will be few places for investors to hide aside from the U.S. dollar (UUP).

Is SPY Stock a Good Buy?

Turning to Wall Street, analysts have a Moderate Buy consensus rating on SPY stock based on 413 Buys, 83 Holds, and seven Sells assigned in the past three months, as indicated by the graphic below. Furthermore, the average SPY price target of $827.18 per share implies 25.8% upside potential.