HSBC forecasts underestimated equity upside heading into 2026

HSBC is signaling cautious optimism for U.S. markets as 2026 approaches, highlighting that the risk of a pronounced equity rally may be underestimated. 

According to the bank, earnings estimates for large-cap companies in the fourth quarter have been revised sharply lower, creating a lower hurdle for performance and potentially setting the stage for upside surprises. 

The financial institution also offered a nuanced perspective on the U.S. labor market, which it says is more resilient than some bearish forecasts suggest. HSBC noted that recent trends show easing stress in employment, a slowdown in layoffs concentrated in specific sectors and regions, and even signs of labor market improvement in certain data points. HSBC believes this balance makes a full-scale recession in the near term unlikely. 

At the same time, the bank notes that bond market signals still highlight vulnerabilities in the labor market, making a rapid repricing of U.S. short-term interest rates improbable. This dynamic, HSBC says, is likely to reduce interest rate volatility—a key risk for the first half of the 2026 trading year. 

For HSBC, market focus should remain on these structural and macroeconomic factors rather than headline themes such as AI, crypto, or geopolitics, which the bank views as secondary in shaping near-term risks.

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