US growth is showing signs of resilience amid a lack of macro data: US economic sentiment remains resilient despite a lack of macro data to provide a complete picture. US earnings estimates for the current fiscal year continue to be revised higher, suggesting that US corporates are doing well despite tariff uncertainty and signs of labour market weakening. The PMI data remains in healthy territory, which again points to room for corporate resilience.
BBVA FCI – False spike or early warning? Over recent weeks we have seen our BBVA Financial Conditions Index (FCI) indicator jump from -0.56 in mid-September to -0.29 last week. The recent rise in the FCI begs the question: is this an early warning of difficult market conditions ahead, or just a false spike? Given strong earnings and a still-strong US growth outlook, we see the recent rise in the FCI as idiosyncratically driven, which would suggest that it could be a good opportunity to sell the spike in equity volatility. Albeit equity volatility has already started to subside post the end of US shutdown.
Earnings the one true barometer: Amidst macro uncertainty driven by trade wars and geopolitics and data uncertainty driven by weak labor markets and strong PMIs, we see earnings as the one true barometer for fundamental performance for equity markets. Global equities started the year on a weaker footing with earnings revised lower across the board. The second half of the year has favored US equities, benefitting from a weak US dollar helping margins and offsetting the impact of tariff related margin pressure. In Europe, Financials have been the best performing sector YTD followed by Utilities. These two were also the sectors with the highest positive earning revisions relative to the US. In the US, tech sector and communication services were the best performing with only the later delivering positive earnings revision this year. Tech sector marginally underperformed the lofty expectations for this year.
Trade idea - Cybersecurity is no more optional but essential to business continuity: Throughout the past year, cyber-threats have surged across industries and geographies, exposing vulnerabilities in retail, manufacturing, aviation, and infrastructure. The global cybersecurity market is set for substantial expansion as organisations across sectors confront an escalating threat environment. According to market estimates, the cybersecurity spending was valued at approximately USD 245.62 billion in 2024 and is projected to reach USD 500.70 billion by 2030, implying a compound annual growth rate (CAGR) of around 12.9% from 2025-2030. The Solactive BBVA Cybersecurity index selects companies on the front lines of digital security, providing data protection and cyber-risk insurance, creating secure online transaction platforms and heeding the call for cyber defence, thanks to the low-latency network infrastructure and components.
Shifting Paradigms - BBVA Cycle based factor allocation: Our Macro Indicator is a six-stage cycle indicator and our FCI Indicator is a two phase Financial condition cycle index. Combining the two we have created a new eleven phase cycle approach to asset allocation. Using the eleven-phase approach, we improve the FCI-based QIS allocation performance from 6% annualised in the last ten years to 7.4%. In the process, this improves the Sharpe ratio of the strategy (see QIS Risk Premia Outlook – 6 November 2025). In this note we share results of doing a similar exercise for factor allocation in the US equity markets. Our results show significant outperformance of our resultant 11 phase approach vs. the US equity benchmark index.