Investing.com -- A shift in Federal Reserve policy, often referred to as the "Fed put," may not be near despite recent market fluctuations, according to HSBC.
The unwinding of U.S. momentum since late February has been the largest since April 2022, with similar trends observed in the S&P 500 and a notable long reversal for the 10-year U.S. Treasury, the biggest since February 2016. However, equity exposure by volatility-targeting and risk-parity strategies has only slightly decreased.
“Our sentiment and positioning indicators have flipped into a mild buy signal, though we’re waiting for a stronger signal before calling the bottom just yet,” HSBC strategists said.
The near-term fundamentals for U.S. equities present a challenge, as the medium-term view remains unchanged, and the belief in structural U.S. exceptionalism continues.
The strategists see better risk-reward in U.S. duration than in equities, given the current risk environment.
“So that leaves US equities and risk assets stuck between a rock and a hard place right now: if US data momentum slows down further, recession fears increase even more,” they said.
“If it doesn’t, the Fed put is even further away. Not a good position to be in - and bear in mind, the latter just increases the risk of a more severe recession even more,” the strategists added.
HSBC is monitoring several factors that could influence the timing of a policy put from the U.S. administration or the Fed.
These include a prolonged shutdown of U.S. primary credit markets, sustained funding market stress, a broad-based sell-off in global risk assets, and a bottoming of U.S. momentum factor and systematic investor positioning.
“Any sustained bottom there would be strongly indicative of a bottom, in our view,” the bank concluded.