HSBC moves to 'max' overweight stocks, saying peak fear about Iran oil spike has passed

It’s time for investors to take their stock exposure up to the max now that the worst fears around the Iran oil spike are behind, according to HSBC. “Yesterday’s price action is indicative of ‘peak fear’ to us with some of our positioning indicators flashing pandemic-type signs,” Max Kettner, chief multi-asset strategist at HSBC, wrote in his upgrade of equities. “We are now max [overweight] equities and fade the moves from the last few days.” Stocks rose Tuesday, building on the prior session — when the major averages staged a massive reversal on President Donald Trump’s remarks that “the war is very complete, pretty much.” Equities also got a boost as U.S. oil dropped 14% to $80 per barrel. Earlier in the week, it neared $120. Of course, investors remain skeptical that the selling is over. Not only is the S & P 500 is just 2.5% away from its record, volatility remains elevated. The Cboe Volatility Index (VIX) — also known as Wall Street’s fear gauge — was last above 20, after topping 30 on Monday. .SPX 5D mountain SPX 5-day chart However, HSBC’s Kettner is confident that the recent bout of panic selling since the start of the U.S.-Iran war will eventually go the same way as the market did during the Covid-19 pandemic, or after last year’s April tariff announcement. In both instances, stocks shrugged off any worries and marched to all-time highs. “For us to turn bearish on risk assets now, we’d have to expect things to get even worse from here, not just stay the same,” Kettner wrote. “The next few days and weeks might well bring renewed ups and downs. But the most important thing to us is that it’s less bad than what we saw in Monday morning trading.” The strategist expressed a preference for Asia and Europe over the U.S., and said that he’s looking for asset classes that have overshot to the downside even as fundamentals remain in place. He’s overweight Japan equities. “Simple playbook,” he wrote. “Buy the stuff that sold off the most since the Middle East conflict started.”