HSBC Asset Management highlights that global stock indices have stayed resilient through the Oil shock, while valuations and risk premia have adjusted more meaningfully. In the US, weaker prices and stronger earnings expectations have compressed the S&P 500 multiple, and higher earnings yields versus bond yields have lifted equity risk premia, leading the bank to argue that expected equity returns have risen.

Multiples compress and risk premia widen

"Stock indices have been resilient through the oil shock. But the real adjustment has been taking place under the surface – in market multiples and risk premia."

"First, in the US, the combination of weaker stock prices, alongside a likely strong Q1 corporate earnings season, and an upgraded 2026 profits scenario – means the market multiple has dropped to around 20x."

"Resilient profits and higher earnings yields have outpaced the rise in bond yields so far."

"US real rates, as measured by long-term Treasury inflation-protected securities, are steady year to date, at around 1.9%. That means the equity premium has moved higher, especially in some EMs."

"The bottom line is that expected returns have moved higher, even if that’s hard to see from price charts alone."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)