HSBC Outlook 2025: The Federal Reserve to cut interest rates 3 times, bullish on the US market and gold

According to the Zhitong Finance APP, HSBC, in its latest global multi-asset strategy report, pointed out that despite recent challenges in the market, including the development of artificial intelligence (AI), trade tariff issues, and the weak performance of large technology stocks, the fundamentals of the global economy remain strong. HSBC maintains its "Goldilocks" economic outlook for the first half of 2025 (H1), believing that the market will continue to achieve broad gains in terms of interest rates and risk assets.

HSBC noted that while there is lively discussion in the market about AI, trade tariffs, and other issues, its core focus remains on economic growth and inflation dynamics. Particularly in the U.S. market, economic growth expectations remain strong, while inflation pressures are expected to ease further. HSBC anticipates that the disinflationary forces in the U.S. will gradually manifest between January and April 2025, providing sustained support for the market.

Market Outlook and Asset Allocation Strategy

From a technical analysis perspective, HSBC's Valuation Adjustment Momentum Score (VAMOS) shows that stocks in developed markets (DM) and emerging markets (EM), EM credit bonds, and high-yield (HY) credit bonds are performing strongly, while maintaining a cautious stance on DM sovereign bonds and investment-grade (IG) credit bonds. Additionally, HSBC's machine learning model (such as MARViN) also shows a preference for stocks, particularly in the current market environment, where stocks are more attractive compared to DM sovereign bonds.

In terms of market sentiment, HSBC's composite sentiment indicator is currently at a neutral level. Although the buy signal from early January has disappeared, some survey-based sentiment indicators are nearing the reverse buy zone. This indicates that market sentiment has not shown a significant shift, and investors remain somewhat optimistic about the market.

HSBC believes that liquidity is one of the most important factors in the recent market. The U.S. Treasury's latest quarterly refinancing announcement indicates that the scale of government bond auctions will remain unchanged in the coming quarters, providing stable liquidity support for the market. This news is a positive signal for the market, indicating that in the first half of 2025, the market is unlikely to face the risk of liquidity tightening.

Based on the above analysis, HSBC maintains its multi-asset allocation view, continuing to overweight U.S. stocks, high-yield credit bonds, emerging market credit bonds, and interest rate bonds, as well as gold. At the same time, HSBC holds an underweight view on IG credit bonds and oil. Among developed market sovereign bonds, HSBC prefers to hold long-term bonds, especially U.S. Treasuries and UK government bonds, while taking a cautious stance on German Bunds and Japanese Government Bonds (JGBs).

Global Market Dynamics

In addition, HSBC's economists and strategists conducted an in-depth analysis of global market dynamics. Although the threat of trade tariffs has temporarily eased for the U.S. neighbors, trade tensions may still impact global economic growth. HSBC expects the Federal Reserve to cut interest rates by 75 basis points in 2025, with 25 basis points cuts at the policy meetings in June, September, and December.

In terms of emerging markets, HSBC's strategists prefer to choose markets with strong domestic fundamentals and well-coordinated monetary and fiscal policies. For the stock market, although some markets may face pressure, corporate earnings are expected to alleviate potential adverse impacts HSBC maintains an optimistic outlook on the U.S. stock market, while believing that the European stock market may be affected by geopolitical and trade-related risks. However, currency depreciation and a scenario of prolonged high interest rates may support certain sectors and markets.

In fixed income, HSBC holds a bullish view on U.S. Treasuries, considering their high real yields make them more attractive relative to other regions and asset classes. In credit bonds, HSBC has a neutral stance on IG credit bonds, while holding a slightly bearish view on HY credit bonds.

In the foreign exchange market, HSBC believes the U.S. dollar is likely to strengthen further, as the differences in growth and monetary policy between the U.S. and other countries will continue to support the dollar. Gold remains well-supported due to the combined effects of fiscal, economic, geopolitical, and trade risks.

Conclusion

HSBC's latest report emphasizes that despite numerous uncertainties in the market, the fundamentals of the global economy remain strong, particularly in the U.S. market. As disinflationary forces gradually emerge and stable liquidity support continues, the market is expected to achieve broad gains in the first half of 2025. Finally, HSBC maintains its multi-asset allocation view, advising investors to remain overweight in stocks and credit bonds in the current market environment, while adopting a cautious stance on sovereign debt and oil