These are the key milestones for the S&P 500 to continue

Investing.com -- The S&P 500 has gained 33% since its April lows, surpassing HSBC’s 6,500 year-end target and moving toward its bull case of 7,000.

But HSBC cautioned that “much can happen before year-end” and outlined several milestones that could determine whether the rally continues.

A key test is the looming government funding deadline. “Congress has until 30 Sep to increase the debt limit and avoid a government shutdown,” HSBC wrote.

The firm noted that over the past 30 years, the government has shut down only five times, with the longest, 34 days, occurring under President Donald Trump’s first administration.

Monetary policy is another factor. “HSBC economists expect the Fed to cut 25bp at both the 29 Oct and 10 Dec FOMC meetings,” the analysts said, adding that recession risks remain low, with consensus probability at 30%.

The firm observed that historically, Fed cuts outside of recessions “results in an 8% rise in the S&P 500 over a six-month period, on average.”

Trade developments also matter. Tariff extensions with Mexico expire on October 31 and with China on November 10.

HSBC said that “further extension, a broader trade deal or start of the USMCA review, in the case of Mexico, would be a positive development.”

The durability of AI investment is another driver. HSBC said it expects third-quarter earnings to “confirm or even expand” capex commitments from hyperscalers, noting that of the Mag7’s $1 trillion cash reserves, “$414bn [is] going to capex with room for more at Apple to catch up in AI.”

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