US stock exceptionalism to continue into 2025, says Barclays

Investing.com -- The dominance of US stocks is likely to persist through 2025, Barclays (LON:BARC ) strategists said, citing a widening gap between US and European equities since Donald Trump’s election victory.

“MAGA policy expectations, coupled with Goldilocks data, have revived animal spirits for US equities,” strategists led by Emmanuel Cau noted.

“It is hard to see an end to US exceptionalism any time soon, which we think remains the playbook into 2025.”

In contrast, Europe faces challenges such as stagnant growth, tariff threats, and political turmoil in France.

While US equities have surged post-election, driven by Cyclicals and Value sectors, European stocks have lagged due to the impact of Trump's policies and a performance and valuation gap compared to the US.

Barclays notes that the outlook for global growth remains healthy, especially in the US, with only a moderate slowdown anticipated in 2025 to around 3%.

“Rate cuts, combined with a resilient labour market and disinflation, should lift the consumer,” strategists said.

“Our assumption is that the policies implemented by Trump will be less extreme than proposed, and come with lags. But they should still result in lower growth and higher inflation down the road,” they added.

For Europe, Barclays expects growth to stagnate at around 0.7% due to trade and political uncertainty, though further ECB rate cuts and a weaker euro could provide some relief. They also forecast China's growth to slow to 4%, citing trade headwinds and weak domestic demand, but note that additional stimulus measures might be introduced in response to US policies.

But despite negative earnings revisions and skepticism about the high single-digit growth forecasts for 2025, Barclays anticipates that modest economic surprises in Europe could limit downgrades. The bank forecasts a 4% earnings growth for European stocks, compared to industry estimates of 8%.

The firm also highlights the potential for mid-single-digit earnings growth in Europe if real GDP growth remains near trend levels and inflation does not plummet.

Although global equities, particularly from the US, have seen significant gains in recent years, Europe remains undervalued, trading below average multiples.

“Geopolitics may see EU equities retain a high risk premium, but we still see room for a more modest re-rating if the cycle extends, and some of the political tail-risks abate,” Cau and his team concluded.

Source: Investing.com