Market Outlook by Barclays

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.

Near-Term Challenges

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.

Positive Trends for Equities

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

1. Hedge Funds and Systematic Players: There is room for hedge funds to add to equities as rate cuts encourage a shift from cash to equities amid favorable post-election seasonality.
2. US Growth Slowdown: The US growth slowdown appears to be bottoming out, supported by rate cuts, a resilient labor market, and lower oil prices aiding consumers.
3. China’s Stimulus: While moderate, Barclays expects more stimulus measures from China to further support the economy.

European Economy

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

Earnings Outlook

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.

Stock Positioning

While cyclical stocks have aligned with recent data, they appear tactically overbought after a short squeeze driven by Fed and China actions. The strategists maintain a neutral stance on Cyclicals versus Defensives for now but suggest adding back to Cyclicals closer to 2025.

They also close their underweight position on Autos and Discretionary, citing an improving consumer outlook. Conversely, Barclays is taking profits on Banks and reducing their overweight to market weight due to weaker European growth and lower rate expectations.

Regional Strategy

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