Equities facing headwinds from US election, geopolitics: Barclays

Investing.com -- While equities are at highs, they face near-term challenges due to the US election and rising geopolitical tensions, according to Barclays.

However, the investment bank maintains that the global rate-cutting cycle and China’s stimulus efforts should help the economy achieve a soft landing.

In the near term, uncertainties surrounding Middle East tensions and the US election are seen as obstacles to risk appetite, which could lead markets to stagnate through October. Still, as long as the election outcome is uncontested, Barclays strategists expect post-election clarity to support more decisive investment actions heading into 2025.

They note that the path of least resistance for equities remains upward, driven by several factors.

First, hedge funds and systematic players still have room to add to equities in the coming months, especially as rate cuts encourage a shift from cash to equities amid favorable post-election seasonality.

Second, the US growth slowdown appears to be bottoming out, supported by rate cuts, a resilient labor market, and lower oil prices aiding consumers.

Third, while China’s stimulus measures have been moderate, Barclays expects more to follow, which should further support the economy.

The strategists also point out that while the European economy is stagnating, accelerated rate cuts should help sustain domestic demand.

In terms of earnings, they don’t foresee a collapse but caution that double-digit EPS growth in 2025 could be difficult if global growth remains at trend levels.

While cyclical stocks have aligned with recent data, they appear tactically overbought following a short squeeze driven by Fed and China actions. Strategists maintain a neutral stance on Cyclicals versus Defensives for now but said they “would lean towards adding back to Cyclicals closer to 2025.”

They also close their underweight position on Autos and Discretionary, citing an improving consumer outlook.

Conversely, the firm said it is taking profits on Banks and reducing their overweight to market weight due to weaker European growth and lower rate expectations.

Regionally, Barclays said it sees a strong case to be Overweight on emerging markets relative to developed markets.

Source: Investing.com