Investors may be fretting over the upcoming US midterm elections, potential capital repatriation by Japanese investors, and the influx of hyperscale cloud providers into the bond market, but strategists at banking giant HSBC remain unperturbed.

Led by Max Kettner, these strategists wrote in a Wednesday report that they anticipate gains across nearly all asset classes, driven primarily by two factors: improving news flow around oil supplies due to Saudi Arabia's desire to reopen the east-west pipeline, and a surge in bets last week that Democrats would capture the House of Representatives on November 3rd, which could prompt the Trump administration to adjust policy in the near term.

"With the midterm elections approaching, there are plenty of potential downside catalysts, but we are not particularly concerned about any of them," the team wrote. Even if the Middle East conflict escalates, robust earnings expectations for the third-quarter reporting season that began in mid-October should provide support for equities and corporate credit.

The strategists indicated they maintain a "maximum overweight" stance on stocks, recommending a tilt toward the technology sector, particularly in the US and Asia, while also favoring European bank shares.

First, they argued that the bond selloff largely reflects a repricing of central bank monetary policy expectations. Rising oil prices since late August have also contributed to this trend. However, the 30-year US Treasury yield stands at nearly the same level as it did at the end of July.

The strategists added that widening swap spreads and rising bid-to-cover ratios on US Treasury auctions continue to signal robust demand for government debt. They noted that yield spreads for hyperscale cloud providers have also shown signs of stabilization recently.

They further suggested that concerns over a Japanese-driven unwind of carry trades are somewhat exaggerated. Carry trades involve borrowing low-yield currencies like the yen to invest in other assets. The worry is that if Japanese authorities succeed in boosting the yen's value, this would mean reduced flows into other investments. But the HSBC team found little correlation between hedge-adjusted US-Japan bond yield differentials and subsequent capital repatriation.

Finally, they pointed out that despite seasonal concerns, the S&P 500 has historically posted positive returns more than 50% of the time both from September through the midterm elections and from the elections to year-end. They added that only investment-grade credit appears likely to underperform during the September-to-midterms period.