End of US exceptionalism? The consensus expectation at the start of 2025 was for this to be a year of US exceptionalism, but market performance has been to the contrary. In Europe, value has performed strongly YtD, with a notably robust performance from European banking stocks. For the past two years, US equities have delivered >20% returns each year. This is a very rare occurrence outside the late 1990s, and has only happened twice in the past 100 years; in both instances, cumulative returns in the subsequent two years were negative.

Cross-asset European exceptionalism. Despite the outperformance of the Europe-first trade, we believe momentum remains strong in the European economy. Investors agreeing with our view could consider:

1. Long SX5E / Short SPX: The BBVA equity strategy team expects “Europe to outperform short-term if ceasefire (between Russia/Ukraine)” (See note).


2. Long European IG credit vs. US: The BBVA credit strategy team agrees with the idea of preferring EUR Credit vs. USD Credit at current levels and despite the YtD25 tightening we have seen in EUR Credit relative to US Credit spreads. Our thesis relies on supportive fiscal spending from Germany, expected rate cuts and a lower risk of recession in Europe vs. the US (c.30% vs 45% in the US, as per BBG estimates). Underlying fundamentals in European corporates and financials remain healthy, all-in yields are attractive vs. historical levels (c.3.3% now) and there are protective break-evens for both IG and HY. See notes here and here.


3. Long basket of EUR, GBP, SEK, NOK, CHF against USD: The BBVA FX strategy team expects European FX to strengthen vs. the USD, with a particularly positive view on EURUSD, SEKUSD and NOKUSD. We are neutral CHF with domestically driven risks to the GBP (See note).