The Spanish stock market is on track for its best performance since the early 1990s, with strategists predicting further gains ahead as the profit outlook becomes increasingly clear. As of Tuesday's close, the benchmark Spanish IBEX 35 index has surged 50% year-to-date, marking its largest annual gain in 32 years and cementing its position as the top-performing major market in Europe. Earnings growth expectations for Spanish companies have been revised upwards by more than 15% this year, outpacing other regions in Europe. The market's current position at historic highs is partly attributed to its relatively lower exposure to U.S. markets and the potential impact of Trump-era trade tariffs. A low unemployment rate and moderate inflation have also contributed to Spain's improved economic standing, helping it secure rating upgrades from all three major credit agencies this year. Mabrouk Chetouane, Global Market Strategist at Natixis IM Solutions, stated in a speech in Madrid on December 11th that the earnings outlook makes the Spanish market "fundamentally different, driven by solid underlying factors." Banking stocks have been the primary drivers of the market's advance. Six of the top ten best-performing companies are lenders, with Banco Santander SA, Unicaja Banco SA, and BBVA SA leading the pack—all three have seen their share prices more than double over the past year. Banco Santander and BBVA are now the two largest banks by market capitalization in the European Union. Simultaneously, the strongest performers in the IBEX index have benefited from robust investor demand for defense companies, as Europe races to rearm amid the ongoing Russia-Ukraine war. Indra Sistemas SA, which supplies sensors, radar, and other electronic systems for aircraft, ships, and military vehicles, has seen its stock price soar 185% so far in 2025. This rally has pushed Spanish stock valuations to levels that are no longer considered cheap, with the benchmark index now trading at a price-to-earnings ratio of around 14 times, above its long-term average. However, compared to the broader Europe Stoxx 600 index, Spanish stocks still trade at a discount of nearly 8%. Chetouane from Natixis indicated that strong credit demand from both corporations and households suggests the IBEX index still has room to grow into 2026. He added, "The fundamentals remain favorable."