European vs US equity outlook and AI sustainability (with Guy, Tom)

Bhanu Baweja argues the near-term trade is to buy Europe (consumer cyclicals, financials) as a one-week window, but the sustainable rotation requires the AI story to stumble. He sees the US economy and earnings as stronger, driven by AI CapEx. He warns that if AI enabler earnings revisions plateau, the momentum trade and S&P could be at risk.

Yields up , medium term, interviewee implicit

implicit

NDX cautious up , short term, interviewee explicit

explicit

RUT

Oil down , short term, interviewee implicit

implicit

Metals

USD

UBS 8.0
Investment Bank $4300.00B
Bhanu Baweja 9.0

European vs US equity outlook and AI sustainability (with Guy, Tom)

ndx

Unless the AI story stumbles, there's no reason for investors to make a beeline for Europe.

12 calls

+6

slightly better than random

5/14/2026 1:35:31 AM	medium term up	20 days later	+4.40%	+4.40%
3/4/2026 11:08:33 PM	short term up	5 days later	-0.26%	-0.26%
11/24/2025 7:04:12 PM	short term cautious up	6 days later	+1.30%	+0.65%
11/14/2025 1:58:15 PM	long term up	60 days later	+2.94%	+2.94%
11/13/2025 7:13:56 PM	long term up	60 days later	+2.93%	+2.93%
10/29/2025 12:29:21 AM	short term up	5 days later	-1.16%	-1.16%
10/24/2025 10:16:08 PM	medium term up	21 days later	-3.96%	-3.96%
10/22/2025 6:37:14 PM	short term up	5 days later	+3.64%	+3.64%
9/10/2025 1:15:07 PM	short term up	5 days later	+1.17%	+1.17%
8/20/2025 5:59:24 PM	short term cautious down	5 days later	+1.65%	-0.83%
8/20/2025 10:38:49 AM	medium term up	20 days later	+3.05%	+3.05%
7/31/2025 8:47:19 PM	short term up	5 days later	+2.42%	+2.42%

Show all 12 ndx results

wti

He says the near-term trade is to buy sectors hurt by high energy prices, implying oil is expected to stay lower or fall further.

yields

He notes the Fed could have introduced a tightening bias if oil stayed high, and the US economy is on an upcycle, implying upward pressure on yields.

Do you buy Europe because it was beaten up? Do you buy tech because we've been loving tech even through the war? What's the focus this morning?

Guy
Bhanu Baweja

In the very near term, sectors hurt the most by high energy prices will benefit. Consumer cyclicals and banks will do quite well. But that's a near-term trade, not a three-month trend. Europe is not in distress, but the US economy has accelerated while Europe's data has deteriorated.

The markets have passed a major test. If the Hormuz Strait is shut for 3.5 months and oil peaks at 120 and settles at 80, that's success. Hard data hasn't weakened considerably.
What would Europe need to see to make you more constructive beyond a one-week window of potential upside?

Tom
Bhanu Baweja

The primary answer is that tech/semiconductors needs to stop being the only show in town. Unless the AI story stumbles, there's no reason for investors to make a beeline for Europe. You need to see a significant broadening of CapEx away from AI into other sectors.

The secondary answer is that you need TTF and crude back to pre-conflict levels. We're still considerably higher.
Is the AI trade an inflation hedge?

Guy
Bhanu Baweja

If we had not got this interim deal and oil prices were still close to 100, this Fed meeting could have looked very different. If the Fed introduced a tightening bias, it could have compromised the momentum trade and the AI trade. So it's hard to argue it would have been an inflation hedge.

We've dodged that bullet. It is quite a big day.
What do we learn from SpaceX and what do we anticipate from the wave of IPOs coming to the market?

Tom
Bhanu Baweja

The view that big IPOs mean the top of the market may be simplistic. Buybacks this year could be about 1.5 trillion, so even with all the IPOs, you could be looking at continued negative equity supply of about 300 billion. That's not a big cause of concern.

What worries me is at what point AI enabling companies' earnings revisions cannot be positive forever. The last time earnings expectations and valuations were this high together was in 1999.

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