U.S. Exceptionalism: Markets Gains and Potential Pitfalls

BNP Paribas and UBS Global Wealth Management Highlight U.S. Economy’s Resilience

The U.S. economy is once again in the spotlight, with The Economist calling it the envy of the world in a recent cover story. While some, like Brett Donnelly from Spectra Markets, have noted that such magazine covers often signal a contrarian view, it’s not just The Economist that is praising U.S. economic strength.

BNP Paribas strategists are focusing on U.S. resilience as policymakers and market participants head to Washington D.C. for the International Monetary Fund and World Bank meetings. They pointed out that the Atlanta Fed’s Q3 GDP growth forecast is an impressive 3.4% annualized, while the eurozone is expected to grow just 0.3% quarter-on-quarter. This means U.S. growth is likely to triple that of the eurozone in the third quarter.

This performance difference is reflected in the markets. The spread between one-year forward rates in the U.S. and eurozone has widened by 60 basis points over the past month, with the U.S. dollar index rising 3%, and the S&P 500 outperforming the Euro Stoxx 50.

In terms of central bank strategy, the Federal Reserve faces uncertainty heading into its next meeting, relying on current data to potentially support a quarter-point rate cut in November. In contrast, the European Central Bank has been more reactive to recent data, cutting rates unexpectedly just five weeks after hinting that a cut was unlikely.

UBS Global Wealth Management has also revised its outlook, raising its target for the S&P 500 from 6,200 to 6,300 for June, and introducing a year-end 2025 target of 6,600.

UBS cited a more resilient labor market, stronger-than-expected economic performance, and a medium-term growth rate above the Fed’s long-term projection of 1.8%. This strength, combined with falling inflation, has reinforced UBS’s positive view on U.S. equities for the future.