According to HSBC, investors should brace for several 'pain trades' that could disrupt market expectations in the latter half of 2026. The report indicates that while the artificial intelligence sector has been a focal point, bearish narratives may emerge, particularly as earnings growth expectations for leading AI companies are projected to stagnate or decline by 2026.
This could lead to unexpected upside surprises in AI performance, despite ongoing skepticism. Additionally, HSBC suggests that European markets may outperform U.S. markets, contrary to prevailing consensus, due to their lower exposure to AI.
The report also anticipates a potential surge in the U.S. dollar, driven by the Federal Reserve's hawkish stance, which could result in tighter financial conditions and a stronger currency than currently priced in by the market. Furthermore, HSBC warns that a steepening U.S.
Treasury curve could catch investors off guard, particularly in light of inflationary pressures stemming from geopolitical tensions in the Middle East. Lastly, the report notes that emerging markets may experience a decline in yields, as investors adjust their expectations for policy rates amidst a stronger dollar and persistent inflation concerns