Barclays favors US growth stocks on Big Tech strength
Investing.com — Barclays (LON:BARC) strategists are maintaining a preference for Growth over Value stocks in the US, while adopting a positive view on Value and a neutral outlook on Growth in Europe.
In the past week, Growth stocks outperformed Value in the US, defying the typical long-term post-election trend.
“Growth continues to benefit from strong fundamentals and Big Tech dominance in the US, while its valuations remain attractive,” according to Barclays strategists.
In Europe, the strategists are now positive on Value stocks, citing their appealing valuations and a historical tendency to rally after elections. They expect a broadening of returns fueled by reinflationary policies and a deregulatory push in a potential Trump second term, which could support Value stocks in the region.
In contrast, Barclays is now neutral on US Growth stocks and has downgraded its stance on Yield from neutral to negative, due to its close correlation with Value.
For Momentum and Quality names, the investment bank has taken a neutral stance in both the US and European markets. It notes that the post-election rally in the US boosted trend-following strategies, adding to record year-to-date gains.
“The style while fundamentally sound has overextended, raising risks for a near-term correction,” strategists wrote.
They have also downgraded Momentum in the US from positive to neutral, while maintaining a neutral outlook in Europe.
Similarly, Quality has been adjusted from positive to neutral in the US, as their analysis points to weaker balance sheet strength in this basket relative to its long-term historical benchmark.
“Unfavorable historical returns of the styles post elections also contribute to our view,” strategists added.
On size, Barclays remains positive on large-cap stocks in the US, while favoring small caps in Europe.
US large caps are preferred over small caps due to better exposure to Quality and stronger growth in sales and earnings per share (EPS), coupled with lower refinancing and leverage risks. This view diverges from the historical pattern of small-cap outperformance after the US elections.
“While we expect some tailwinds for small caps, we believe they face higher earnings and leverage risk given their poor fundamental balance sheets,” Barclays cautioned.
In Europe, however, the strategists maintain a Positive outlook on small caps, given their low valuation levels and historical rally tendency after elections.
Lastly, high-volatility stocks in the US have been upgraded from negative to neutral as investors rotate into riskier stocks following the election. Meanwhile, the firm maintains a negative stance on defensive Low Volatility stocks in Europe, positioning for post-US election dynamics in the market.