A senior strategist at HSBC says investors who are fixating on geopolitical developments are focusing on the wrong thing, and that the next two to three weeks will be defined by earnings reports coming from one sector.
In a new CNBC interview, HSBC chief multi-asset strategist Max Kettner says that tech and Mag 7 earnings are the only catalyst that matters for the S&P 500 right now, and that he expects them to deliver.
“The much more important thing right now is the outlook for tech, the outlook for AI. That’s almost 50% of the market cap of the S&P. That’s what matters much, much more than the geopolitics. In two to three weeks, this is what’s going to matter is the tech and the Mag 7 earnings. And I doubt that they’re going to be disappointing.”
Kettner points to recent developments in the AI infrastructure space as the catalyst that has already begun to shift sentiment in tech’s favor, noting that the sector had been trading sideways for six months before finally breaking out.
“Tech and the Mag 7, they’ve been broadly flat. We’ve just broken out of this sideways range since November. Why? It’s because of CoreWeave and because of Oracle. We have had these AI funding concerns since the fourth quarter last year, since the Q3 reporting season. And what you had then is basically the first time that the AI CapEx names were getting punished, no longer rewarded.”
Looking at tech valuations, the HSBC strategist highlights that the data shows the tech sector is trading at multi-year lows.
“Look at the tech premium. Look at S&P Tech versus S&P ex-Tech. Look at the Mag 7. Strip out Tesla, because that’s not AI. Look at the six names against the overall market. At the bottom, just three weeks ago, we were on a 10-year low. We had that at the lowest since 2016. We’re still at an eight-year low, despite them trading at all-time highs. So from a valuation perspective, it’s not that the US and those tech names are expensive.”
As of Tuesday’s close, the S&P 500 is trading at 7,064.
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