Barclays expects Big Tech earnings and a series of central bank meetings to decide the next phase for equity markets. Strong results have carried stocks through higher bond yields and Brent crude back near $100 per barrel, but the bank’s strategists say the investment backdrop is becoming more challenging and favour more portfolio protection.
The next phase for equity markets will be determined by Big Tech earnings and a series of central bank meetings, Barclays said, as investors balance resilient corporate performance against mounting macroeconomic risks. Strong earnings have helped equities withstand higher bond yields, rising oil prices and renewed concerns over artificial intelligence spending, but the bank warned that the investment backdrop is becoming more challenging.
Earnings beat expectations on both sides of the Atlantic
Early second-quarter earnings have exceeded expectations on both sides of the Atlantic, according to Barclays, reinforcing confidence in corporate fundamentals. However, strategists led by Emmanuel Cau said oil prices and bond yields have reached levels where downside risks are becoming more pronounced.
Google delivered stronger-than-expected quarterly results, yet Barclays said the report has done little to calm investor concerns over the long-term sustainability of artificial intelligence investment. With several major technology companies still due to report, the bank expects AI-related capital expenditure to remain one of the market’s primary areas of focus.
Brent near $100 lifts inflation expectations
With no breakthrough in the conflict between the United States and Iran, Brent crude has climbed back to around $100 per barrel. Barclays said the move has pushed inflation expectations higher across both the United States and Europe, even though recent economic data pointed to softer inflation.
Beyond inflation, Barclays warned that banks and economically sensitive sectors could face renewed pressure if oil prices remain elevated. Real U.S. interest rates have risen by around 50 basis points since the April peak in oil prices, the bank noted, but unlike previous episodes the latest increase came with an adverse supply side energy shock rather than stronger economic growth.
The Fed, ECB and Bank of Japan meetings come next
Barclays expects the Federal Reserve to leave rates unchanged next week while emphasising its fight against inflation. The European Central Bank has indicated that another interest-rate increase remains possible at its September meeting.
The Bank of Japan is also expected to attract significant attention after recent hawkish signals suggesting a faster pace of policy tightening, a shift Barclays called reminiscent of the summer 2024 carry trades unwind episode. According to InvestorsHub, the strategists added that “the global policy easing cycle is over for good” and that risk assets have to adjust to higher real rates, which rarely come without volatility.
Barclays favours hedges with equities near record highs
Because equity markets still trade close to record highs despite rising macroeconomic risks, Barclays believes investors have limited room for disappointment. The bank also noted that seasonal trends ahead of the U.S. midterm elections are typically less favourable.
It concluded that the margin for error is low and that asymmetry at current levels does not look great. That supports a more defensive approach and the use of portfolio hedges.
Source: InvestorsHub
Trading involves risk.
Risk Disclaimer
