Key Points:
- Barclays sees fragility in the market’s current risk appetite.
- The bank keeps a positive rating on U.S. Growth stocks.
- Value stocks received an upgrade to Neutral amid sector rotation.
- Momentum stocks were downgraded due to stretched valuations.
Barclays analyst Venu Krishna issued a note on Wednesday warning investors that the stock market is showing cracks in its confidence. The bank believes the recent rotation—where traders move money from one sector to another—has exposed “fragility in the risk-on mood.” As a result, the firm is adjusting its strategy for both the U.S. and European stock markets.
The bank’s latest report highlights a clear shift in what investors want right now. “Value” stocks and companies that pay dividends are leading the pack. Meanwhile, “Momentum” stocks, which rely on fast-moving trends, are losing steam. In Europe, money is even moving back toward defensive stocks as traders seek safety.
Despite the shaky atmosphere, Barclays is not giving up on growth companies in the United States. The firm maintains a “Positive” rating on the Growth factor. Krishna points to strong business fundamentals, rising profit expectations for Big Tech, and steady demand for artificial intelligence products as reasons to stick with these winners.
However, the bank decided to change its tune on U.S. Value stocks, upgrading them from “Negative” to “Neutral.” Krishna noted that these companies are benefiting as investors pull cash out of crowded AI trades. A helpful inflation environment is also supporting this sector, though the bank warned that some price gains rely on market enthusiasm rather than actual earnings growth.
On the downside, Barclays downgraded Momentum stocks to “Neutral.” The analyst explained that these stocks now look too expensive. The excitement driving the AI narrative is fading slightly, and profit growth in this area is not as strong compared to the rest of the market.
When it comes to company size, Barclays believes bigger is better. The bank holds a positive view on large-cap stocks over small ones. Krishna argues that earnings expectations for small companies are deteriorating, while Big Tech giants remain financially strong and resilient against economic trouble.
The situation in Europe mirrors these changes. Leadership in the market is shifting as Value stocks hold their ground, but Momentum fades, raising the risk that recent market trends could reverse quickly.
