HSBC’s Kettner Says Blowout Earnings Dim ‘Danger Zone’ Fears

HSBC strategist Max Kettner says blowout first-quarter corporate earnings, driven by technology megacaps, have provided fundamental support to the stock-market rally, dimming worries about elevated Treasury yields. The robust earnings season has helped ease fears that the market was entering a 'danger zone' where rising bond yields would pressure equity valuations. Kettner noted that the strong profit reports, particularly from the largest tech companies, have reinforced the bull case and reduced the risk of a sharp correction. For traders tracking these moves, NowPrice offers real-time quotes on major stock indices and individual equities to help gauge the latest market sentiment.

The 'danger zone' concept is rooted in the Fed model, which compares the earnings yield of the S&P 500 (the inverse of the forward P/E) to the 10-year Treasury yield. When bond yields rise faster than earnings yields, stocks become relatively less attractive. Currently, the S&P 500 forward P/E sits around 20x, above its 10-year average of 18x, while the 10-year yield hovers near 4.5%. This gap has historically signaled caution, but strong earnings growth—especially from megacaps like Apple (AAPL), Microsoft (MSFT), and Nvidia (NVDA)—has kept the earnings yield competitive. Additionally, breadth indicators show that the rally is broadening beyond tech, with sectors like financials and industrials also reporting solid results. Buyback announcements remain elevated, providing further support, while options-implied volatility (VIX) has stayed subdued, suggesting limited fear of a near-term selloff.

Looking ahead, Kettner expects the earnings momentum to continue supporting stocks, though he cautioned that the market remains sensitive to shifts in Federal Reserve policy and inflation data. Investors will watch upcoming economic releases, including jobs reports and consumer price index readings, for clues on the rate path. The interplay between earnings growth and yield dynamics will likely determine the market's direction in the coming weeks. A key risk is if inflation reaccelerates, forcing the Fed to hold rates higher for longer, which could compress P/E multiples. Conversely, a soft landing with moderating inflation and resilient earnings would reinforce the bull case. Sector rotation may accelerate as investors shift from expensive growth stocks to value plays if yields stay elevated. Ultimately, the sustainability of the rally hinges on whether earnings can continue to outpace the rise in real yields.