AI Feels Like a Goldilocks Scenario for Markets, Says HSBC's Pinder

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00:00Alistair Pinder and the team at HSBC setting their 2026 S&P 500 target at 7,500, writing,

00:06AI has carried equity markets throughout 2025. We believe it will drive both equities and credit

00:12in 2026, though in different ways. Alistair joins us now after a refreshing Thanksgiving break that

00:17all of us cannot relate to. But I am curious from your perspective going forward, how come you think

00:22that AI is going to resurrect that kind of lead hire, given some of the concerns that we've seen

00:26recently? Well, I think if you look at the performance of the market this year, it's been

00:30driven by the AI infrastructure and, you know, the AI enablers story. You know, going into next year,

00:36I think the big narrative for markets is how companies are going to adopt AI and that's going

00:41to drive earnings. And so there's loads of data showing this. You know, some ones that we like

00:44to look is the Ramp AI Index shows 45% of companies are adopting AI. One of the things that we've been

00:50doing a lot on is, well, what is the actual tangible cost savings from this? And so far, we think that

00:55there can be basically 1% of cost cuts going into next year. That's $130 billion. We think that can

01:01basically be saved going into 2026. And there's this amazing narrative going on right now in the

01:06market where revenue is increasing. You've got 9% growth. Actually, at the same time, companies are

01:11cutting back on labor. And so if you look at the warm data from the S&P 500 companies, it's been

01:16shooting higher. But this has nothing, absolutely nothing to do with them warning about the economy.

01:20Actually, their corporate guidance, earnings revisions are, you know, close to all-time highs.

01:24So this almost, for me, feels like a Goldilocks scenario going with the, you know, the AI narrative

01:29going into next year. And my final thing, if you have a little bit of labor weakness as a result of

01:33AI, then going back to your conversation about the Fed, might that not keep the Fed a little bit more

01:38dovish? And that, I think, again, can help support the equity market rally going into next year.

01:43Goldilocks for the equity market, maybe not the economy, which is a sort of key distinction here.

01:47I do wonder, so this is an argument for AI being dominant, but that means the rest of the 493

01:51outperforming, playing catch-up with the Magnificent Seven. Is that correct?

01:56Correct. And again, one of the biggest things that we've seen over the last couple of years

02:00is that actually the performance of the Mag-7 has not been driven by valuations. It's all been by

02:05earnings growth. And now what we're seeing is earnings growth going from roughly 30% to 40%

02:09year on year into next year, probably being in high teens, and the rest of the market actually

02:14catching up with that. And so this will be one of the first years, really since 2021,

02:18where earnings growth between the Mag-7 and the 493 are going to be somewhat equal. And so I do see

02:23much more scope for outperformance for the rest of the market.