The S & P 500 index hit a new high for 2023 last week, crossing the 4,600 level and continuing its rally since early November. The key question for investors now is whether this momentum can be sustained in the future. HSBC Global Research thinks there’s room for more upside. The bank’s analysis shows that the S & P 500 ‘s current performance falls short of past rallies that ensued a pause in U.S. Federal Reserve interest rate hikes. HSBC strategists pointed out that the S & P 500 had historically rallied 22% on average between when the Fed first paused hikes and six months after the central bank started cutting rates when a recession did not “imminently” materialize. .SPX YTD line The investment bank expects the FTSE All-World stock index will rise to 480 by the end of next year, which is 4.2% higher than current levels. Their price target offered a greater than 15% upside when the bank made the call in November. What will drive stocks higher HSBC believes U.S. stocks will be driven higher thanks to increased company profits rather than an expansion in price-to-earnings multiple, which was the reason behind the last rally. “We expect the next leg of the rally to be driven by upward revisions to earnings estimates rather than valuation-led,” said Alastair Pinder, head of emerging markets and global equity strategist at HSBC, in a note to clients on Dec. 6. In addition, the increase in company earnings is likely to come at a time of lowered expectations, according to HSBC. According to FactSet data, the 2023 fourth-quarter earnings per share estimates have already been cut by 5% since the end of September. That leaves room for companies to beat lowered expectations, Pinder noted. The strategist also highlighted several positive signals that fourth-quarter earnings could remain strong, including credit card spending data, which points to robust consumer demand over the Thanksgiving holiday period. Further, Pinder said that artificial intelligence analysis of the language used in earnings calls so far suggests corporate outlooks have not significantly worsened across regions. “The current macro backdrop of stronger than expected economic growth and softer than expected inflation provides a supportive runway for equities to outperform,” Pinder added. David Neuhauser, chief investment officer at hedge fund Livermore Partners, also said that strong consumer spending data was driving up earnings estimates and pushing up share prices. However, the hedge fund manager remains unconvinced that it is the sole outcome for markets. On CNBC’s ” Squawk Box Europe ” Monday, Neuhauser said that although strong consumer spending data is pushing markets to price in a “goldilocks” scenario, oil and gold markets are telling a “whole different story,” signalling a recession instead. The fund managed by Livermore Partners holds oil and gold positions.