HSBC US Stocks Overview: As the market remains cautious, selling pressure intensifies!

HSBC Bank released a research report summarizing the performance of the US stock market and the US economy in March 2025. It pointed out that tariff concerns have severely impacted the market, with the S&P 500 index posting its largest monthly decline in over two years. In March, the S&P 500 index entered a correction phase, temporarily falling 10.1% from its historical high. As the deadline for the tariff decision on April 2 approached, the index closed the month with a 5.8% decline. Meanwhile, the US economy seemed to slow down, with mixed labor data, persistent inflation, and uncertainty putting pressure on consumers. The Federal Reserve kept interest rates unchanged for the second consecutive meeting and maintained a hawkish stance, while revising down growth expectations for the first quarter. The market does not seem to be affected by this, with nearly three rate cuts expected in 2025 (compared to the previously forecasted two in January). HSBC economists maintain their prediction of a 75 basis point rate cut in 2025. With the first-quarter earnings season about to begin, the market generally expects a significant slowdown in earnings compared to the previous quarter. During the volatile trading period in March, the S&P 500 index recorded its largest monthly decline in over two years, with all sectors except the energy sector experiencing losses. The technology, non-essential consumer goods, and communication services sectors were most impacted, with declines of 8-9%. The energy sector was shielded from market volatility by an increase in Brent crude oil prices, rising by 3.7%. Among the "Big Seven Tech Stocks", one of the largest decliners saw a total decline of 10.5%, but the other 493 stocks showed more resilience, with a monthly decline of only 2.4%. Therefore, equal-weighted indices like the S&P 500 outperformed the benchmark index, marking the third consecutive month of outperformance (with a 220 basis point outperformance in March). The US economy stagnated in March, with personal consumption expenditures (PCE) inflation rising to 2.5% year-on-year, although the Consumer Price Index (CPI) remained slightly lower at 2.8%. Labor data showed a mixed picture, with an increase in the unemployment rate by 10 basis points to 4.1%. Continued claims for unemployment benefits remained steady, but initial claims for unemployment benefits seemed to be on the rise. FOMC's decision was as expected, with the Fed reiterating a hawkish stance, waiting for clearer labor market conditions, lowering growth expectations and raising inflation expectations, as uncertainty continues to pressure businesses and households. Consumer data showed clear weakness, with consumer confidence hitting a three-year low, leading to decreased consumer spending and increased savings. The first-quarter earnings season is about to begin, with a general expectation of a 7.8% slowdown in earnings per share (EPS) compared to the previous quarter. Each industry is expected to see a slowdown in EPS, except for the healthcare and utilities sectors (up by 5-6%). Looking at year-on-year comparisons, the market generally expects a more optimistic outlook, with the healthcare (+37.6%) and technology (+15.6%) sectors expected to achieve double-digit growth, while the energy, materials, and essential consumer goods sectors are expected to decline. Data from FactSet shows a decline of 1.3% in overall expected earnings over the last three months, but still implies an 11.7% year-on-year growth for 2025. With escalating tariff concerns and deteriorating US economic prospects, the S&P 500 index came under pressure. Worries about the scale of President Trump's tariff agenda, along with worsening US economic prospects, led to the largest monthly decline in over two years for the S&P 500 index. Due to continued lack of clarity in US trade policy, investors withdrew ahead of the upcoming tariff decision deadline on April 2, leading to a sharp increase in market volatility. Sectors heavily impacted by tariffs, including industrial, essential consumer goods, and non-essential consumer goods stocks, fell by 3.7%, 2.8%, and 9.0% respectively. Recent weak US consumer data, particularly in the non-essential consumer goods sector, put added pressure. Meanwhile, prospects for growth stocks began to be shrouded in uncertainty, with the S&P 500 growth index underperforming the value index, posting a monthly decline of 8.3%, lagging behind by nearly 510 basis points. Growth-oriented sectors like technology and communication services led the decline in the benchmark index, falling by 8.4% and 8.9% respectively, largely driven by the overall 10.5% decline in the "Big Seven Tech Stocks". As a result, the S&P 500 equal-weighted index outperformed the benchmark index for the third straight month, with a 220 basis point outperformance in March, the largest gap so far. Investors seemed to flock to defensive sectors. Despite an OPEC+ plan to increase supply in the coming months, the relatively unaffected energy sector was the only sector to rise in March (up by 3.7%). Looking at recent market turbulence, much of the recent weakness in the market was due to funds flowing out of growth-oriented and key cyclical sectors. Therefore, except for the "Big Seven Tech Stocks", most S&P 500 component stocks showed more resistance to declines, rising by 0.3% since January, while the "Big Seven Tech Stocks" had dropped significantly by 21.4%. In particular, Tesla fell by 46% from its 52-week high, down 36% since the beginning of the year, with all component stocks, except for Meta, falling by 10-20% since January 1. The core defensive sectors such as healthcare, essential consumer goods, and utilities were among the few to see an increase in forward 12-month price-to-earnings ratios over the past three months, as investors shifted funds away from technology and non-essential consumer goods sectors. The US economy showed signs of slowing down in March. Economic prospects deteriorated, economic growth slowed, and inflation rates rose slightly. In February, the personal consumption expenditure (PCE) inflation rate rose to 2.54% year-on-year, with core PCE up slightly.The inflation rate has increased by 10 basis points compared to last month, reaching a year-on-year increase of 2.8%. Economists at HSBC currently predict that the core PCE inflation rate will remain above 2.5% for the whole year. Despite a slight decrease in the Consumer Price Index (CPI) to 2.8%, uncertainties in the labor market and tariffs have led the Federal Reserve to keep interest rates unchanged for the second consecutive meeting and raise the annual inflation expectation by 20 basis points to 2.7%. At the Federal Open Market Committee (FOMC) meeting in March, due to concerns about retaliatory tariffs and increased anxiety among households and businesses, the Federal Reserve revised its forecast for 2025 economic growth from 2.1% in December last year to 1.7%.It is worth noting that policymakers have indicated the possibility of two more interest rate cuts and announced measures to gradually reduce quantitative tightening policies. The market responded tepidly to this, with expectations for three interest rate cuts this year, which is higher than the previous month's expectation of 2.5 cuts, and higher than the January expectation of only two cuts. In the labor market, although the unemployment rate remains low, there was a slight increase in March (up by 10 basis points to 4.1%), while non-farm employment numbers increased against the trend, showing significant growth since the beginning of the year. However, the labor market situation remains challenging, with job vacancies continuing to decline, ongoing claims for unemployment benefits remaining higher than pre-pandemic levels, and initial claims for unemployment benefits also increasing. Nevertheless, perhaps the most significant change in the US economy this month is the continued weakness of American consumers. Due to uncertainties about tariffs, stock market sell-offs, and concerns about unfavorable weather conditions, consumer confidence has fallen to its lowest level since 2021. This situation is beginning to be reflected in some real data: retail sales only grew by 0.3% month-on-month, lower than expected, and a greater decline in the year-on-year trend, as households increase their savings rates due to economic concerns. At the same time, businesses continue to increase imports ahead of anticipated tariff policies, but this trend eased in February, with the trade deficit contracting by 4.9% month-on-month. The labor market appears to be stagnant, with ongoing claims for unemployment benefits unchanged and job vacancies decreasing. Meanwhile, consumers are preparing for further uncertainties: First-quarter profit expectations are softening, reflecting various unfavorable factors. First-quarter profit expectations show a significant quarter-on-quarter contraction of 7.8% in earnings per share (EPS), but a 7.2% year-on-year growth. First-quarter sales growth expectations are also lower on a quarterly basis (down by 4.3%), but higher than the first quarter of 2024 (up by 4.0%). Recent economic headwinds seem to be putting pressure on the profit outlook for all companies, with only the energy and healthcare sectors expected to see faster growth in earnings per share than in the fourth quarter (5.3% and 6.3% growth, respectively). Looking at the year-on-year perspective, profit prospects are relatively optimistic, with market expectations generally foreseeing single to double-digit growth in most industries, led by healthcare (+37.8%) and technology (+15.6%). Forecasts suggest that earnings in the energy and materials industries are expected to contract by 15.5% and 13.1% year-on-year in the first quarter, respectively. As earnings season approaches, earnings expectations for the full year of 2025 have been downgraded by 1.3% in the past three months, but are still expected to grow at a healthy pace of 11.6% year-on-year. The financial industry is one of the few industries that has seen positive growth in annualized earnings expectations over the past three months, with year-on-year growth increasing from 1.9% to 7.8% in 2025, while the materials industry has seen a general decrease of 8.9% in market expectations over the past three months. The healthcare and technology sectors are expected to achieve the highest year-on-year earnings growth, with a market-wide expectation of nearly 19%, while forecasts for energy, consumer staples, and real estate show that growth in 2025 will slow to lows of 1-2%. Market expectations for sales are generally lackluster on a quarterly basis, with first-quarter sales expected to decline from the fourth quarter across the board, except for utilities (expected to grow by 9.6%) and the financial industry (stable). Looking at the year-on-year perspective, sales are expected to rise across all industries, with technology (+12.1%) and healthcare (+8.7%) leading the way, while the industrial (0.6%) and energy (+0.2%) sectors are expected to lag behind, with growth in other industries ranging from 2-5%. Market expectations for profit margins are generally lower, showing a decrease compared to the previous quarter but an increase year-on-year. First-quarter earnings expectations are down, but a rebound is expected in the second quarter. The "Big Seven Tech Stocks" show more resilience in full-year earnings for 2025. First-quarter sales growth expectations appear strong, led by the technology sector: Expect pressure on net profit margins in the first quarter. Market-wide expectations for earnings per share and sales estimates.