Street Calls of the Week
Investing.com -- Barclays said that the Federal Reserve’s latest rate-cutting cycle should help the U.S. economy avoid a downturn, arguing in a note Friday that “lower rates should take some U.S. recession risk off the table.”
The bank noted that the Fed “kicked off its easing campaign last month with a 25bp ‘risk management’ cut,” adding that while policy outlooks are complicated by “questions over central bank autonomy as well as the government shutdown,” the bank’s base case is for rate cuts “to proceed at a measured pace.”
Barclays wrote, “We expect lower rates to help the U.S. economy avoid a downturn. While job growth has slowed considerably, supply-side factors are the most likely culprit and do not suggest imminent collapse.”
The note added that although housing starts and sales are weak, both “housing labor and prices remain strong,” and other indicators “remain solid or expansionary.”
Looking at historical patterns, Barclays remarked that non-recessionary rate cuts favor growth more and that growth outperformance becomes more consistent in these cycles.
It maintained a “Positive view on Growth over Value,” citing past trends in equity performance following easing campaigns.
Sector-wise, Barclays said that “defensives (Healthcare and Staples) tend to outperform t+6m due to recession overlaps,” but in prior soft landing cycles of the mid-1990s, the best performers were “cyclical and growth sectors (Communication Services, Financials, Tech, and Discretionary), as well as equity returns overall.”
Taking these trends into account, Barclays said it maintains a “Positive Outlook on Tech and Financials,” citing their “stronger earnings profile, reasonable valuations and historically strong positioning in non-recessionary rate cutting campaigns.”