BBVA Global Markets Quantitative Investment Strategies & Index Solutions
News | 03 Febrero 2026
QIS Thematics: Cyclical Upswing
Cyclical Upswing
US growth is at its softest since 1Q25: US economic sentiment has softened recently. That said, Bloomberg consensus for US growth in 2026 is still at 2.4% despite expectations that consumer spending will slow from 3.5% last year to just 2.1% this year. Early evidence from the 4Q corporate earnings season is positive with signs of earnings growth being posted by a broader selection of US stocks rather than just the Mag-7, as was the case in the last three years.
Equity dispersion supports thematic investing: the current environment of low macro volatility and stable growth supports our view of a mid-cycle environment in the US economy. Equity dispersion typically tends to rise in mid-cycle environments as the key driver of returns becomes earnings rather than valuations. We believe 2026 will be dominated by earnings-driven equity performance and rise of dispersion. We believe investing in thematic strategies with potential long-term upside could be beneficial in such environments.
US earnings picking up breath: the US equity earnings growth for the past three years was predominantly driven by the tech sectors and Mag-7 stocks. This year, we are finally seeing signs of a broadening in earnings growth. The US small-cap stocks were in earnings recession for the last three years on the back of higher rates. As the Fed normalises rates back to neutral, we see small-cap stocks as having the best exposure to the widely expected cyclical upswing in the US economy this year.
Small things matter: we expect a combination of a recovery in US economic growth, loose financial conditions and supportive fiscal policy to help US small-cap stocks outperform. The Russell 2000 index underperformed the MSCI US equity index last year (by c.5%) on the back of tech leadership and softening US growth given the tariff uncertainty since the start of the year. Looking back at 40 years of history, the “soft-landing” scenario in terms of Fed cuts tends to lead to an outperformance in small caps.
Implementation: given the stars are aligning for small caps to outperform, we see the Russell 2000 high vol index (40% volatility based on exponentially weighted moving average) as a better instrument to implement our bullish small-cap view. Episodes of Russell 2000 outperformance of the SPX have seen the Russell 2000 HV index deliver outperformance over the Russell 2000 index due to higher leverage. We saw this during 2016-18, in late 2019, 2021, 2024 and more recently since April, as the US economy rebounded from a soft 1Q and the Liberation Day-driven sell-off.
We also like exposure to our BBVA Solactive Small Cap Index: we believe that positioning in technology and AI beneficiaries is still the core of most investor portfolios. At the same time, positioning towards more cyclical parts of the economy like financials, industrials and small caps remains muted, as evidenced by the record valuation gap between small and large-cap stocks. The Solactive BBVA US Small Caps Select Index picks the largest highly liquid small-cap companies by sector in the US with a focus on balance sheet quality and profitability.
US growth is at its softest since 1Q25: US economic sentiment has softened recently. That said, Bloomberg consensus for US growth in 2026 is still at 2.4% despite expectations that consumer spending will slow from 3.5% last year to just 2.1% this year. Early evidence from the 4Q corporate earnings season is positive with signs of earnings growth being posted by a broader selection of US stocks rather than just the Mag-7, as was the case in the last three years.
Equity dispersion supports thematic investing: the current environment of low macro volatility and stable growth supports our view of a mid-cycle environment in the US economy. Equity dispersion typically tends to rise in mid-cycle environments as the key driver of returns becomes earnings rather than valuations. We believe 2026 will be dominated by earnings-driven equity performance and rise of dispersion. We believe investing in thematic strategies with potential long-term upside could be beneficial in such environments.
US earnings picking up breath: the US equity earnings growth for the past three years was predominantly driven by the tech sectors and Mag-7 stocks. This year, we are finally seeing signs of a broadening in earnings growth. The US small-cap stocks were in earnings recession for the last three years on the back of higher rates. As the Fed normalises rates back to neutral, we see small-cap stocks as having the best exposure to the widely expected cyclical upswing in the US economy this year.
Small things matter: we expect a combination of a recovery in US economic growth, loose financial conditions and supportive fiscal policy to help US small-cap stocks outperform. The Russell 2000 index underperformed the MSCI US equity index last year (by c.5%) on the back of tech leadership and softening US growth given the tariff uncertainty since the start of the year. Looking back at 40 years of history, the “soft-landing” scenario in terms of Fed cuts tends to lead to an outperformance in small caps.
Implementation: given the stars are aligning for small caps to outperform, we see the Russell 2000 high vol index (40% volatility based on exponentially weighted moving average) as a better instrument to implement our bullish small-cap view. Episodes of Russell 2000 outperformance of the SPX have seen the Russell 2000 HV index deliver outperformance over the Russell 2000 index due to higher leverage. We saw this during 2016-18, in late 2019, 2021, 2024 and more recently since April, as the US economy rebounded from a soft 1Q and the Liberation Day-driven sell-off.
We also like exposure to our BBVA Solactive Small Cap Index: we believe that positioning in technology and AI beneficiaries is still the core of most investor portfolios. At the same time, positioning towards more cyclical parts of the economy like financials, industrials and small caps remains muted, as evidenced by the record valuation gap between small and large-cap stocks. The Solactive BBVA US Small Caps Select Index picks the largest highly liquid small-cap companies by sector in the US with a focus on balance sheet quality and profitability.