HSBC's fourth-quarter equity outlook rests on broadening earnings rather than stretched valuations, with a specific tilt toward the United States and Japan. The distinction is a staple of equity strategy: earnings-led advances rest on actual profit growth spreading across more companies and sectors, while valuation-led gains depend on investors paying steadily higher prices for the same level of profits. Weekly charts for both the Nikkei 225 and the S&P 500 — a timeframe that smooths out day-to-day swings to reveal the underlying trend — are broadly consistent with that framing, although the two indices are not telling identical stories at present.

Nikkei 225: Uptrend Intact, Range Compressing

The multi-year advance off the 2025 low remains structurally intact, with price still above the long rising trendline that has defined the trend since the low near 51,000 in March 2026. In recent weeks, however, weekly highs have stepped lower — from the late-June peak near 73,600, through the August high around 69,600, to current levels near 63,700. The combination of a still-rising support line underneath and a descending line of lower highs above is producing a converging range rather than an outright top — a structure in which price action tightens as the two boundaries draw closer, and one that usually ends with a breakout in one direction or the other.

That pattern fits comfortably with HSBC's more constructive view on Japan. Corporate governance reform — a years-long push to raise capital efficiency and shareholder returns at Japanese companies — and the gradual normalisation of Bank of Japan policy, the measured unwinding of years of ultra-low rates and large-scale monetary stimulus, stand as longer-run supports, and the chart shows the primary uptrend has not been broken — only that momentum has cooled into a squeeze after a very sharp June rally. A move that reclaims the upper 60,000s on a closing basis — a weekly close rather than a fleeting intraday touch — would support the case that this is a pause within the trend rather than a reversal.

S&P 500: Still Stair-Stepping, but the Latest Step Is Smaller

The S&P 500's advance since its 2025 low has unfolded in a series of consolidation shelves followed by breakouts, most visible around 6,100, then 6,900–7,000, then 7,500 — each a base before the next leg higher. That pattern remains intact and is consistent with HSBC's read that earnings, not multiple expansion — the dynamic in which valuations rise faster than profits, lifting prices without a matching improvement in underlying earnings — have been doing the work.

One nuance stands out: the advance from the last shelf near 7,500 to the recent high around 7,800 was noticeably smaller than the two prior legs. Price has since pulled back into the 7,570–7,650 area, close to the last shelf itself. The uptrend structure has not been broken, but because the latest leg was shallower, the current pullback into support is a more meaningful test than previous ones. A hold here would keep the stair-step pattern in place, while a clean break of the 7,570 shelf on a closing basis would mark the first real dent in that structure since the rally resumed in April.

What to Watch Next

For the Nikkei, the focus is on a decisive close outside the 59,000–66,000 compression zone in either direction. For the S&P 500, attention turns to whether the 7,570–7,600 shelf holds on a weekly close, since a break there would carry more weight given that the last leg higher has already lost some of its earlier thrust. Both tests are worth tracking because they sit directly on the structures that would either reinforce or complicate HSBC's earnings-led thesis — the Nikkei's compression zone and the S&P 500's most recent shelf.

Educational Takeaway

A trend can remain technically intact even as each new leg grows smaller. That loss of thrust is not the same as a reversal, but it is often the first visible sign that a market wants to slow down or needs more time to build a base before the next advance is confirmed.

Technical levels and indicators provide reference points, not guarantees. Market conditions can change quickly, particularly during periods of high volatility. Trading or investing carries risk, and participants should apply risk controls appropriate to their own circumstances.