Positive Cyclical Backdrop
HSBC notes a positive cyclical backdrop, supported by investment spending and fiscal measures. It says this expands opportunities in Industrials and can also lift Materials through infrastructure activity. The bank says Utilities benefit from rising electricity demand in the US, Asia and parts of Europe. It adds that a broad approach aims to reduce concentration in the US and technology. HSBC remains overweight global and US equities across IT, Communications, Financials, Industrials, Materials and Utilities. It has upgraded global Energy stocks to neutral due to higher oil supply risk from Middle East tensions. On regions, HSBC continues to favour the US while adding to Asia for diversification, valuations and innovation exposure. It adds that some emerging markets have outperformed as investors reduce US exposure.Options Positioning And Risk Control
Given the strong earnings momentum we saw carry over from the fourth quarter of 2025, we believe the bullish case for equities remains intact. The tech sell-off late last year has made valuations more attractive, and with the VIX holding steady around 15, buying call options on broad indices like the S&P 500 is a favorable strategy. This allows for participation in the upside while defining risk in a market that is still digesting last year’s gains. The expansion of AI is creating tangible opportunities beyond software, especially in the industrial and materials sectors. With fiscal spending from infrastructure programs passed back in 2023 and 2024 now translating into real projects, we see continued strength here. Derivative traders should consider longer-dated call options on industrial ETFs like XLI, as government data from last month showed a 6% year-over-year increase in new orders for capital goods. We also see a clear, secular growth story in utilities, driven by the immense power demands of new data centers. Recent industry reports show that data center electricity consumption in the US grew by over 20% through 2025, a trend we expect to accelerate. This makes buying call options on the utilities sector (XLU) more than just a defensive play; it is a way to gain exposure to the physical backbone of the AI revolution. Geographically, we should continue to look outside the US to diversify and capture value, particularly in Asia. Japan’s Nikkei index had a landmark year in 2025, and we are now seeing increased investor flows into India and South Korea, where tech and manufacturing sectors are showing strong growth prospects. Using options on ETFs like the iShares MSCI India ETF (INDA) can provide targeted exposure to these expanding markets. Finally, with ongoing geopolitical tensions in the Middle East causing crude oil prices to hover near $90 a barrel, we must manage risk in the energy sector. While we are neutral on energy stocks themselves, the elevated volatility presents an opportunity for derivative plays like call spreads on energy ETFs such as XLE. This strategy allows us to profit from a potential spike in oil prices while capping our maximum loss if tensions ease. Create your live VT Markets account and start trading now.
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