The S&P 500 has climbed 33% since its April lows, moving past HSBC’s year-end target of 6,500 and now approaching its bullish scenario of 7,000.
However, HSBC analysts cautioned that several key milestones must be met for the rally to continue.
One immediate test is the looming U.S. government funding deadline. Congress must raise the debt ceiling by September 30 to avoid a shutdown. Over the past 30 years, there have only been five shutdowns, the longest lasting 34 days under President Donald Trump’s first administration.
Monetary policy will also play a critical role. HSBC economists expect the Federal Reserve to cut rates by 25 basis points at both the October 29 and December 10 FOMC meetings. While recession risks remain low, consensus places the probability at 30%. Historically, Fed cuts outside of recessions have led to an average 8% rise in the S&P 500 over six months.
Trade developments are another factor. Tariff extensions with Mexico expire on October 31 and with China on November 10. HSBC noted that extensions, broader deals, or the start of a USMCA review with Mexico would all be positive outcomes for markets.
Finally, the durability of AI-driven investment remains a strong driver. HSBC expects third-quarter earnings to reinforce or expand capital expenditure commitments from major tech firms. Out of the $1 trillion in cash reserves held by the Mag7, around $414 billion is earmarked for AI-related capex, with Apple still having room to expand its investments in the sector.
