US growth seeing impact of energy crisis: US economic momentum has slowed materially since the beginning of March, largely driven by higher energy and gasoline prices. While equity markets have remained resilient, underlying growth has begun to show signs of softness. US composite PMIs have also softened, falling toward the 50 threshold, with the latest readings around c.50.3 – levels consistent with near-stagnation and among the weakest in recent years. Equity markets, however, have remained focused on nominal GDP growth and resilient tech earnings, both of which have shown limited signs of stress so far. As a result, aggregate US earnings expectations have continued to be revised higher since the start of the year.
BBVA FCI falling after a positive reading in March: BBVA FCI has moved back into negative territory after reaching a positive peak in March, reflecting an easing in financial conditions following the initial shock from the US-Iran conflict. The subsequent ceasefire has helped reduce macro volatility and supported a rebound in equity markets, driving the recent decline in our FCI. However, despite this normalisation in risk sentiment, energy prices remain elevated and transit through the Strait of Hormuz still faces significant disruption, ensuring the underlying volatility remain risks firmly in place.
Earnings the one true barometer: as the US and EU earnings season begins, investors will increasingly focus on whether current expectations are still justified, particularly as valuations have already adjusted lower, with US equities now trading below 22x PE from around 24x at the start of 4Q25. In this environment, earnings are emerging as the key driver of equity performance, particularly against a backdrop of geopolitical tensions and normalising cross-asset volatility. EM, US tech and small caps are expected to deliver the biggest gains, while Europe lags. Looking ahead, the sustainability of these earnings trends will be critical, with earnings – rather than valuations – likely to remain the primary driver of market performance.
Trade of the month – Cybersecurity: Anthropic’s Mythos marks a step-change in cybersecurity, with AI now capable of autonomously identifying vulnerabilities and generating exploits at scale, uncovering thousands of flaws – including decades-old bugs – and dramatically compressing the time between discovery and exploitation. This fundamentally reinforces cybersecurity as a recession-proof theme. Unlike cyclical sectors such as energy, where demand fluctuates with oil prices and economic growth, cyber risk is structural and continuously rising.
Sector of the month – US tech: The US tech relative P/E ratio has declined sharply from its recent highs, reflecting a meaningful de-rating after an extended period of premium valuation. This suggests that the strong earnings delivery and stable prices are reducing the valuation premium. Looking ahead, while the fundamental outlook remains strong, the combination of recent de-rating, normalised positioning, and still-healthy earnings outlook could drive allocation back into the sector. We have already seen some evidence of this, with tech outperforming since the market trough in March.