Disclosures & Disclaimer This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it. Issuer of report: HSBC Securities (USA) Inc View HSBC Global Research at: https://www.research.hsbc.com   We launch a US sector ‘Radar’, looking for out-of-favor sectors with improving dynamics; alongside the existing Global and European Radars  Staples and Bond proxies look attractive. Autos in ‘value trap’ quadrant, Consumer Durables at risk  US differs strongly from Europe in 3 sectors: Telecoms, Tech Hardware, and Capital Goods We extend our Radar framework to US sectors. This framework combines signals from investor sentiment with underlying dynamics and valuation. Household Products look well-placed in the US, whilst Consumer Durables looks at risk. Autos could be a ‘value trap’, with high investor pessimism but weak fundamentals. 6 October 2016 Ben Laidler Global Equity Strategist HSBC Securities (USA) Inc. ben.m.laidler@us.hsbc.com +1 212 525 3460 Daniel Grosvenor* Equity Strategist HSBC Bank plc daniel.grosvenor@hsbcib.com +44 20 7991 4246 Yevgeniy Shelkovskiy Equity Strategist HSBC Securities (USA) Inc. yevgeniy.x.shelkovskiy@us.hsbc.com +1 212 525 3035 * Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations Global Equity Insights EQUITIES GLOBAL US HSBC US Radar Source: HSBC Industry group codes: ENE = Energy; AUT = Autos; BNK = Banks; CAP = Capital Goods; CDU = Consumer Durables; CMS = Commercial Services; CSV =Consumer Services; DIV =Diversified Financials; FBV = Food & Beverage; FRT = Food Retailing; HEQ = Health Care Equipment; HHP = Household Products; INS = Insurance; MAT = Materials; MED = Media; PHA =Pharma; RES = Real estate; RET = Retailing; SEM = Semiconductors; SFW = Software & Services; TCH= Tech Hardware; TEL = Telecoms; TPT = Transportation; UTL = Utilities ENEMATCAPCMSTPTAUTCDUCSVMEDRETFRTFBVHHPHEQPHABNKDIVINSRESSFWTCHSEMTELUTLovervaluedundervaluedneutralUncovering US Sector Opportunities – Keep it defensive  EQUITIES  GLOBAL 6 October 2016 2 Launching the US Radar 3 Targeting US sector opportunities 3 How US sectors differ from Europe 5 US corporate credit similarities 5 Our US equity view: ‘Safer haven’ characteristics for now 6 US sectors: Expect rotation back to defensives 9 ‘Buy Quadrant’ - US Household Products 11 ‘Value Trap’ Quadrant – US Autos 12 ‘Sell Quadrant’ - US Consumer Durables 13 ‘Momentum Quadrant’ - Pharma 14 Largest US sector ETFs 15 Where US and European sectors differ 16 Telecoms: Regulatory currents in focus 17 Technology Hardware: The biggest contrast 19 Capital Goods: US in the ‘sell’ quadrant 21 Global view: Defensive sectors and barbell markets 23 Disclosure appendix 27 Disclaimer 30 Contents  3 EQUITIES  GLOBAL 6 October 2016 Targeting US sector opportunities We launch a US sector ‘radar’, which uses the same methodology as the European and Global radars (online versions here: www.research.hsbc.com/Radar). This is the starting point for our thoughts on individual sector allocation. The framework combines signals from investor sentiment (on the horizontal axis), short-term dynamics (vertical axis), and valuation (color) to provide sector overweight and underweight ideas. The top-left ‘buy’ quadrant is the best place to be. Here, investors are pessimistic but dynamics are positive. In contrast, the lower-right quadrant (optimistic investors, negative dynamics) is the highest-risk quadrant and would tend to signal a sell. For full methodology details see the Appendix. 1. HSBC Global Sector Radar Source: HSBC Launching the US Radar  Adding to the Global and European ‘Radars’, we launch the US, looking for out-of-favour sectors with improving dynamics  Staples and Bond proxies look attractive, in-line with our global view  Three sectors stand-out, where the US differs strongly from Europe Our Radar framework combines signals from investor sentiment with underlying dynamics and valuation  EQUITIES  GLOBAL 6 October 2016 4 2. Underlying indicators Key questions Indicator OPTIMISM - Are institutional investors pessimistic? International fund holdings: active weight, z-score - Are sell-side analysts pessimistic? Sell-side recommendation consensus score: relative, pp - Are equity multiples low? Relative trend adjusted PE, deviation from 10Y average, % DYNAMICS - Are earnings revisions positive? 3-month earnings revisions ratio: relative, pp - Are prices rising faster than book values? 3-month change in price-to-book: relative, % - Does the sector outperform at this stage in the cycle? Rank based on correlation of returns and EPS growth against world industrial production growth DYNAMICS - Is the sector undervalued? 12-month-fwd PE, Price-to-book, Price-to cash earnings, CAPE: relative, avg z-score Source: HSBC The US Radar is based on MSCI USA constitu