Strategists at HSBC have remained "max overweight" on equities.

Investors may be worried about the upcoming U.S. midterm elections, capital repatriation from Japanese investors and hyperscalers flooding the bond market, but strategists at the banking giant HSBC are not.

The strategists, led by Max Kettner, wrote in a Wednesday note that they foresee gains from virtually all asset classes driven by both improving headlines about the flow of oil - with Saudi Arabia's hopes to reopen the East-West pipeline - and the spike in bets last week on the Democratic Party taking the House of Representatives on Nov. 3., which could lead to policy pivots by the Trump administration in the near-term.

"Heading to the midterms there's a whole host of potential downside catalysts - none of which we are particularly concerned about though," the team wrote.

Even if the war in the Middle East escalates, strong expectations for earnings per share in the third-quarter financial reporting season, beginning in mid-October, should support stocks, as well as corporate credit.

The strategists said that they remain "max overweight" on equities, recommending leaning into the technology sector, especially in the U.S. and Asia, and European banks.

Firstly, they said, the bond selloff has broadly been a repricing in monetary-policy expectations for central banks. Since the end of August, it has also been driven by rising oil prices (CL00). But the yield on the 30-year Treasury note BX:TMUBMUSD30Y is nearly the same as it was at the end of July.

The strategists added that wider swap spreads and increasing bid-to-cover Treasury ratios continue to indicate strong demand for U.S. government bonds. Also, hyperscalers' spreads have recently been showing signs of stabilizing, they wrote.

They added that fears around a Japanese-driven carry trade unwind are overblown. The carry trade refers to borrowing in a low-yielding currency, like the yen, to invest elsewhere. The concern is that if the Japanese authorities are successful in boosting the value of the yen, that would mean less investing elsewhere.

But the HSBC team found little correlation between the difference in U.S. and Japanese bond yields after adjusting for hedging and subsequent repatriation.

Finally, they note that for all the concern about seasonality, the percentage of times the S&P 500 SPX was positive from September to the midterms - and then from the midterms to the end of the year- has been over 50%.

Only investment-grade credit seems to suffer, in the September to midterm period, they add.

-Nora Redmond