HSBC Global Research is cautioning that several prevailing market assumptions may not hold through the second half of 2025 — and advisors should prepare clients accordingly.
The firm outlines three potential “pain trades” that could challenge consensus views, especially for investors positioned for a pullback or regional rotation.
Wall Street sentiment is becoming increasingly one-sided, HSBC notes, as many wealth managers and institutional allocators share similar outlooks heading into Q3. But if the market deviates from these expectations, portfolios heavily tilted toward these narratives could face meaningful volatility.
"The market’s mood is more aligned than it has been in some time," HSBC wrote in a note to clients. "When positioning becomes this stretched, it doesn’t take much to trigger sharp reversals. If Q3 brings unexpected macro or geopolitical shifts, these trades could unwind in ways that catch many investors off guard."
HSBC’s analysts also flagged the possibility of a continued broad-based melt-up in U.S. equities, even as many expect a correction. That disconnect between positioning and momentum is one of the key risks they highlight. Below are three trades they believe could surprise investors — and impact wealth planning strategies — in the coming months.
1. U.S. Equities Continue to Outperform Global Markets
Among institutional and retail investors alike, there’s growing belief that international equities — especially in Europe and parts of Asia — are poised to outperform U.S. stocks in the second half. The thesis hinges on valuation gaps, potential dollar weakness, and the risk of renewed tariffs or political uncertainty hitting U.S. markets.
But HSBC isn’t convinced. The firm believes investors underappreciate the U.S. market’s resilience and the breadth of participation in the current rally. Megacap tech may still dominate headlines, but earnings revisions are rising across multiple sectors. Liquidity remains strong, and the U.S. consumer continues to surprise to the upside.
For RIAs managing client portfolios with a home-country bias or considering increasing international exposure, it may be worth stress-testing portfolios for a scenario where the S&P 500 continues to outperform global benchmarks. The risk: underexposure to U.S. equities just as they push through another leg higher.
2. Tariff Concerns Fail to Derail Market Sentiment
Another widespread assumption is that the re-escalation of U.S.-China trade tensions — or a renewed focus on tariffs in the run-up to the election — will create headline risk and depress risk appetite. That’s leading some advisors to pull back from cyclicals, trim tech, or reduce beta in client portfolios.
HSBC challenges that logic. “Markets may be more insulated from tariff talk than expected,” the strategists write, noting that much of the proposed policy shift is already priced in. In addition, there’s limited historical evidence that tariff announcements alone materially alter long-term equity flows.
For wealth advisors, the takeaway is that clients may be making allocation decisions based on overestimated macro risk. While protectionism poses long-term structural questions, in the near term, markets may stay focused on earnings strength and Fed policy rather than trade headlines.
3. The Rate-Cut Narrative Doesn’t Play Out as Expected
Many market participants expect the Fed to begin easing before year-end, and fixed income positioning reflects that. Bond proxies in the equity space — utilities, REITs, dividend payers — have seen increased flows, while longer-duration bonds have also rallied in anticipation of rate relief.
But HSBC warns that if inflation proves stickier than anticipated or growth remains robust, the Fed may not deliver the rate cuts markets are pricing in. In that scenario, both equities and fixed income could see sharp repricing. Equity income strategies, in particular, could underperform if yields stay elevated and investors rotate back into growth and cyclicals.
“There’s significant asymmetry in the way portfolios are positioned for rate cuts,” the bank said. “If those cuts don’t materialize — or are delayed — it could leave both equity and bond investors exposed.”
For advisors, that underscores the need for flexibility in fixed income allocations and caution around duration risk. Tactical shifts into short-duration, inflation-protected, or floating-rate instruments may offer a buffer if the Fed stays on hold longer than expected.
Positioning for the Unexpected
In many cases, these “pain trades” reflect positioning extremes — a market heavily tilted toward one outcome that leaves limited room for error. Wealth advisors may want to use this environment to help clients reassess concentration risk, revisit assumptions baked into model portfolios, and prepare for market scenarios that defy consensus.
Rather than reacting to headlines or sentiment shifts, HSBC recommends grounding allocation decisions in fundamentals — earnings revisions, credit conditions, and real-time data — rather than relying on widely held narratives.
For RIAs advising high-net-worth or mass-affluent clients, the key message is this: Consensus thinking doesn’t guarantee consensus outcomes. If the market continues to melt up, if tariffs prove to be noise, or if the Fed holds firm on rates, portfolios too closely aligned with today’s consensus could face meaningful drawdowns.
A more diversified, risk-aware posture may serve clients better than chasing the crowd into crowded trades.
