Markets hate uncertainty. And even if bull markets do “crawl up a wall of worry,” uncertainty is always a convenient excuse for a big sell-off. Now HSBC’s strategy team is upgrading European stocks versus U.S. stocks in what it points out at a tactical move. And Morgan Stanley has also issued its own near-term cautious outlook and long-term positive outlook for U.S. stocks.

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Monday’s continued sell-off was after President Trump did not rule out a recession by noting “a period of transition” that will eventually pay off. This, along with continued tariff pressure, pressured the S&P 500 down 2% and the Dow down 1% in late-morning trading. And now the CBOE Volatility Index was back up over 26 to show grossly oversold readings in the market (anything over 25 is generally considered extreme, even though the VIX can go even higher).

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HSBC’s Alastair Pinder, head of emerging-markets and global-equity strategist, issued a double-upgrade on European Stocks, taking Euro equities up to Overweight from Underweight after game-changing fiscal stimulus in Europe and Germany’s move to loosen the economy. HSBC simultaneously downgraded its weighting on U.S. stocks to Neutral from Overweight based on shifting narratives in the U.S.

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This strategic call is tactical by nature as it calls for a rotation for equity investors. That said, the call does not represent a full-blown “Long Europe, short U.S.” even if that is how it is being interpreted presently.

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HSBC’s pro-Euro call was excluding the United Kingdom. HSBC’s new model is calling for an 11% allocation to European stocks and a 64% allocation to U.S. stocks. Monday’s tactical call noted “the U.S.’s wavering support for NATO and Ukraine” triggering a watershed moment for the eurozone and “with Germany expected to also follow through with sizeable fiscal stimulus.” Germany’s effort to exceed its debt ceiling was a key issue here, with other European nations expected to follow suit.

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As for the Magnificent 7 stocks, with most down double-digits in 2025, HSBC is actually noting more positive valuations at 26.7-times forward earnings (versus 31-times at the start of 2025). And despite concerns about the U.S., Pinder’s note did include the opportunity for gains:

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“If – and it is a big if – the tariff noise starts to settle down, this would set the stage for global equities to rally sharply again.”

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Morgan Stanley strategist Michael Wilson now sees risks of another 5% sell-off in the S&P 500 Index based on tariffs hurting corporate earnings along with a reduction in fiscal spending from government cost-cutting efforts. Wilson now sees the S&P 500 drifting down to 5,500 or so during the first half of 2025, but he still sees he index rising up to 6,500 by year-end — versus 5,770.20 as of Friday’s close and versus 5.665 late Monday morning.

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As things may have to get worse before they get better, this puts the downside from Monday’s sell-off at about 3% more versus an expected gain of over 14% from present levels. If the U.S. dips into recession as a bearish case, Wilson warned that the S&P 500 could ultimately sink 20% from its high.

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The report also cited international markets outperforming the U.S. YTD, Trump tariff uncertainty, valuations of the top stocks, and downward earnings revisions for corporations. That said, he is also looking for seasonal patterns and earnings revisions improving over the next few weeks.

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Neither Morgan Stanley nor HSBC is recommending an outright shorting of U.S. stocks. That said, the caution is right there in front of each report. Markets never like uncertainty, but over the long haul history has shown that bull markets crawl up a wall of worry — or should it be called uncertainty.

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Tactical Bulls always reminds its readers that investors should never use a single research report as the sole basis to buy or sell investments. Sometimes reports get it wrong from the start, and sometimes fundamentals change in an instant.