Equities Analysis: Resilient Earnings Spark Optimistic Valuation Reassessment

HSBC’s global research finds a favorable shift in equity markets as forward valuations compress toward long-run averages while corporate earnings remain resilient. The S&P 500 now trades near a forward P/E of ~18.5, down from over 21 in early 2024, with European and emerging markets showing even greater discounts. Aggregate corporate earnings grew about 6.2% year-over-year, outpacing consensus, supported by margin stability, revenue growth and strong cash generation. HSBC argues this alignment of normalized multiples, sustained earnings growth and steadier policy expectations creates a potential ‘valuation sweet spot’ that could support above-average 12-month returns historically, while underscoring the need for selective security selection, international diversification and monitoring of geopolitical and policy risks.