Equities: Valuation levels rise as profits remain steady – HSBC

HSBC Asset Management: Equity Markets Show Strength Amid Oil Price Volatility

According to HSBC Asset Management, major equity benchmarks have demonstrated notable stability despite recent disruptions in oil prices. Beneath this surface resilience, however, there have been more pronounced shifts in market valuations and risk premiums. In the United States, a combination of declining share prices and improved earnings forecasts has resulted in a lower S&P 500 price-to-earnings ratio. Additionally, the gap between equity earnings yields and bond yields has widened, boosting the equity risk premium and, in turn, raising the outlook for potential equity returns.

Valuations Contract and Risk Premiums Expand

While headline indices have weathered the oil shock, HSBC points out that the most significant changes are happening within market fundamentals—specifically, in valuation multiples and risk premiums.

• In the US, softer stock prices, a robust first-quarter earnings season, and improved profit projections for 2026 have pushed the market’s valuation multiple down to roughly 20 times earnings.
• Corporate profits have remained strong, and earnings yields have increased at a faster pace than bond yields.
• US real interest rates, tracked by long-term Treasury inflation-protected securities, have held steady near 1.9% this year, contributing to a higher equity risk premium—especially in certain emerging markets.

In summary, HSBC concludes that the expected returns from equities have improved, even if these gains are not immediately obvious from price movements alone.

(This report was produced with assistance from an AI tool and subsequently reviewed by editorial staff.)