HSBC Warns of Market Risks Amid Changing Tariff Dynamics

NEW YORK, N.Y. — HSBC Global Research released a report on July 7, 2025, warning that consensus views on Wall Street may be incorrect in the latter half of the year. The strategists highlight that traders are betting on the performance of U.S. stocks amidst uncertain tariff impacts, but the bank sees a risk that market reactions could differ from expectations.

In their client note, the strategists noted that many views entering the second half have become widely held, making sentiment indicators show increasing signs of overextension. They questioned what would happen if the third quarter defies prevalent expectations.

“Improved economic indicators in recent weeks suggest that the U.S. stock market might continue performing well, contrary to some pessimistic forecasts,” the bank wrote. They specifically pointed out that corporate earnings might not be as adversely affected by tariffs as many anticipate.

A survey conducted in June indicated that 54% of global fund managers believe international equities will outperform U.S. stocks over the next five years. However, HSBC suggests that the U.S. could maintain market dominance due to its strong corporate earnings. Strategists noted that 20% of the costs for American firms derive from international sources.

“Yes, the U.S. equity market is expensive. That’s because it generates the most profits,” HSBC analysts stated. They emphasized potential advantages from deregulation and advancements in artificial intelligence that could elevate U.S. companies’ profitability against international competitors.

Despite widespread concerns about slowing economic growth, recent data showed signs of a rebound, contributing to optimistic forecasts. High-frequency indicators have indicated improved consumer confidence and GDP expectations as of June.

HSBC also addressed the U.S. dollar, predicting it would remain “soft” unless external shocks shift market perceptions. They contend that any strength in the dollar could take investors by surprise.

On July 8, 2025, Wall Street reacted cautiously as President Donald Trump adhered to his August 1 deadline for new tariffs, keeping markets on edge. The Dow Jones Industrial Average finished slightly lower, reflecting investor anxiety about potential inflation and economic impacts from the tariffs.

Investors, including Bill Merz from U.S. Bank Wealth Management, acknowledged a shift in market sentiment, noting an increasing optimism despite uncertainties. “What we’ve seen since April shows markets adapting to the reality of tariffs, which may not be as detrimental as some predict,” Merz said.

While sectors like banking faced some downward pressure, others such as tech stocks like Nvidia have shown resilience, suggesting investors maintain caution while navigating this evolving landscape.