After a 40% Memory-Chip Rout, HSBC Says Stocks Still Have Room to Run

HSBC's sell signal fading changed the market debate

The key development is not that risks have vanished. It is that the latest stress test failed to break equities the way many investors feared. HSBC says its sell signal ... has now disappeared, and the price action backs up why that matters: over the past two months, bad news kept arriving, but the market held up far better than expected.

The shakeout did not produce the feared damage

Over the last two months, investors got plenty of reasons to get nervous. Oil rose $30 a barrel. Asian memory names sold off 40%. Momentum stocks fell sharply, and even some high-flying private-market valuations pulled back. And yet global equities remain about 1% off their early-June record.

That does not mean the market is flawless. It does suggest the feared outcome was worse than what actually showed up. That is not a reason for euphoria; it is a reason to stop trading as if a full break in risk assets is already happening.

The bear case is still credible, but the earnings bar looks low

The live debate is no longer whether new risks exist. It is whether a low near-term earnings bar matters more right now than rising AI costs and outside market noise.

Apple shows the cost-transfer risk

Bears do not need a crash story to make their case. They only need to show that AI demand is creating cost pressure before it creates broad profit relief. Apple is the clearest example. The company raised prices on iPads and MacBooks to counter surging memory and storage chip costs, and the stock move wiped about $250 billion off its market value.

That does not invalidate Micron's strong numbers. It does raise a harder question: if chipmakers are earning the cash first, but downstream companies have to pass more cost on to customers, where does the profit survive in the chain?

Why the bull case still has traction

The bull argument here is practical rather than optimistic. HSBC says consensus expects second-quarter U.S. EPS to dip slightly quarter over quarter, which means the near-term earnings bar is easy to clear. In that setup, companies do not need to impress investors; they mostly need to avoid disappointing them.

Markets often move on expectation gaps, not on whether the underlying business picture is perfect. If earnings prove merely "not worse" than a soft forecast, that can still support equities.

The yen and external conditions still matter

The Reuters report also highlighted the yen near a 40-year weak point against the dollar. That adds an important nuance to the backdrop: part of the market's confidence depends on stable financial conditions, not just acceptable company results. If currency conditions shift, concentration risk in tech and AI becomes harder to ignore.

So the near-term debate is straightforward: do investors care more about the low earnings bar today, or about rising AI cost pressure and fragile external conditions? HSBC clearly favors the first frame of reference.

Why HSBC still sees upside: earnings estimates up, valuation down

HSBC's core case is that the market has already reset in a helpful way. Earnings expectations have moved back up while valuations have moved back down. When both levers shift together, stocks do not need a heroic new story to keep rising.

The scoreboard has already been adjusted

HSBC pointed to S&P 500 12-month forward EPS upgraded another 5.5% over the past year, alongside a broad-based second-quarter reporting season. It also said valuation has reset, with the forward P/E now a full two turns below its 21.5 level at the start of the conflict.

That is the central upside mechanism. If reality lands near this new baseline, equities may have more room for a rerating than for another sharp reset.

Why the next leg could be easier

The near-term earnings bar also looks softer than the headline backdrop suggests. HSBC notes consensus still expects second-quarter U.S. EPS to dip slightly quarter over quarter. When that is the starting point, investors do not need perfection. They mostly need results that are not worse than a declining forecast.

HSBC also sees less room for another sharp hawkish rate surprise after the U.S. front-end has already repriced. That does not remove all macro risk, but it can help keep the path of least resistance for stocks tilted higher in the near term.

How to use HSBC's call: stay constructive, but require proof

One bridge sentence is enough: stay constructive, but make that convexity earn its keep.

HSBC is not asking investors to ignore the headlines. It is asking them to use the right scorecard. With the sell signal ... disappeared and the bank still maximally overweight equities, the practical posture is to stay exposed while checking whether the market is truly clearing a low earnings bar rather than simply ignoring new pressure.

What would confirm or invalidate the setup

A rally of this type does not need heroic news. It mostly needs the expected bad news to keep failing. So the near-term catalyst is straightforward: earnings that clear an easy bar while geopolitical and rate noise stays contained.

The better watchpoints are:

• Confirmation: earnings clear the low bar, earnings estimates stay firm, and leadership broadens beyond the usual AI-heavy lane, matching what HSBC describes as broadening out of performance.
• Invalidation: AI and technology spending start to slow, or positioning turns so euphoric that HSBC's framework flips back to a sell signal.

Until that changes, HSBC's call is best read as a case for staying constructive while demanding proof.