HSBC has issued a warning to investors cheering for the rally: This return to the market has no legs. Max Kettner, head of multi-asset strategy at HSBC, said: “We think this is a rather wishful thinking. “For this ‘buy anything’ rally to continue, we need to see more revaluation of rate hike expectations and another sharp drop in real yields.” The Federal Reserve’s pledge to reduce inflation as well as ease recession fears sparked a rally in markets. The S&P 500 is now up more than 13% from its recent low of June 16. The benchmark is also having its best month since November 2020, gaining more than 9% in July. Bond prices also increase with stocks. Benchmark 10-year Treasuries traded near 2.7% on Thursday, down from nearly 3.5% in mid-June. “The decline in expectations of central bank rate hikes has lifted quite a few boats,” Kettner said. “From a fundamental perspective, we need to see a stabilization of growth indicators fairly soon. And of course, all the tightening and slowing growth that we’ve seen so far will need to be justified. enough to bring inflation down significantly.” HSBC downgraded the stock to “maximum underweight” along with high-yield credit and government debt. Widespread follower Mike Wilson from Morgan Stanley also calls this rally unsustainable as corporate earnings are starting to deteriorate. Wilson, one of Wall Street’s biggest bears, said the previous drop in stocks did not fully reflect the risk of a recession because earnings typically fall much more sharply during a recession. — Michael Bloom of CNBC contributed to this report.