Barclays strategists maintain their preference for growth stocks over value stocks in the US, while adopting a positive view on value and a neutral view on growth in Europe.
Last week, growth stocks outperformed value stocks in the US, defying the typical long-term post-election trend.
“Growth continues to benefit from strong fundamentals and the dominance of large technology companies in the US, while their valuations remain attractive,” according to Barclays strategists.
In Europe, strategists are now positive on value stocks, pointing to their attractive valuations and historical tendency to rise after elections. They expect yields to expand supported by re-inflation policies and a liberalization push in Trump’s potential second term, which could support value stocks in the region.
In contrast, Barclays is now neutral on US growth stocks and downgraded its stance on yield from neutral to negative, due to its close association with value.
For the Momentum and Quality names, the investment bank took a neutral stance in both the US and European markets. He points out that the post-election rally in the United States has strengthened trend-following strategies, adding to the record gains achieved since the beginning of the year.
“Although the approach is fundamentally sound, it has gone too far, increasing the risk of a near-term correction,” the strategists wrote.
They also downgraded Momentum’s US rating from positive to neutral, while maintaining a neutral outlook in Europe.
Likewise, Quality was revised from positive to neutral in the US, as their analysis indicates weak balance sheet strength in this basket compared to its long-term historical benchmark.
“Unfavorable historical returns for post-election patterns also contribute to our view,” the strategists added.
In terms of volume, Barclays remains bullish on large-cap stocks in the US, while favoring small-cap companies in Europe.
Large-cap companies are preferred in the United States over small-cap companies because of better exposure to quality, stronger growth in sales and earnings per share (EPS), along with refinancing risk and lower leverage. This view departs from the historical pattern of small-cap companies outperforming after the US election.
“While we expect some tailwinds for small-cap companies, we believe they face higher earnings and leverage risks given their weak underlying balance sheets,” Barclays warned.
However, in Europe, strategists maintain a positive view of small-cap companies, given their low valuation levels and historical trend to rise after elections.
Finally, high-volatility stocks in the US were upgraded from negative to neutral as investors turn to riskier stocks after the election. At the same time, the company maintains a negative stance on defensive, low-volatility stocks in Europe, positioning itself for post-US election market dynamics.
