CS, GS and BofA, all of whom believe stocks aren’t fully reflecting the challenges facing the US economy

• HSBC cuts S&P 500 year-end price target to 3,500 from 4,450
• Credit Suisse, Goldman Sachs also lower targets for the index

Some of Wall Street’s biggest banks aren’t buying this stock-market rally.

Firms from HSBC Holdings Plc to Credit Suisse Group AG are skeptical that the S&P 500 Index has reached its ultimate low and warning that US equity prices still don’t fully reflect the risks of higher interest rates on earnings and valuations. Aggressive tightening by the Federal Reserve in an attempt to fight the hottest US inflation in four decades can do further damage to corporate bottom lines and, in turn, share prices, according to HSBC.

On Tuesday, the bank joined other skeptics, including Goldman Sachs Group Inc. and Bank of America Corp., in revising its year-end target for the S&P 500 to 3,500 from 4,450 in 2022, which implies a drop of nearly 5% from Monday’s close. It argues that a shift in the outlook for higher borrowing costs will weigh on valuations for US equities.

Valuation risks for the benchmark index “will persist well into 2023, and most downside in the coming months will come from slowing profitability,” which threatens to push the S&P 500 as low as 3,200 in the fourth quarter, according to Max Kettner, HSBC’s chief multi-asset strategist. That puts the firm’s year-end target below the average of 4,346 in the last Bloomberg survey conducted in mid-September.