What the bad jobs report means for markets
Investing.com -- In a note on Friday, Barclays (LON:BARC) reiterated its preference for U.S. equities over international markets, pointing to an improving earnings outlook, relatively resilient valuations, and favourable positioning across investor groups.
“We continue to favor US equities vs. RoW, having cleared the OBBBA overhang and with economic data surprises improving relative to a month ago,” analysts wrote in a note.
While U.S. valuations have risen, Barclays said they “are not severely dislocated” and still see room for upside, particularly in Big Tech.
The firm highlighted that recent second-quarter results from Alphabet (NASDAQ:GOOGL), Meta (NASDAQ:META), and Microsoft (NASDAQ:MSFT) suggest “growth momentum is intact,” while the group’s valuation premium to the broader S&P 500 is trading in “the bottom quartile of its historical premium,” indicating potential for further gains.
On a broader level, Barclays noted that U.S. large-cap stocks are trading in the top decile of 10-year observations, while their European and Asia-Pacific peers are in the top quintile.
Still, analysts acknowledged that “relative valuations are less supportive of the US compared to a month ago.”
Outside the U.S., the bank flagged Asia-Pacific and emerging markets as worth monitoring given stronger recent equity performance.
However, they cautioned that “EPS revisions in APAC are trending negative, and margins are expected to weaken Y/Y,” which could limit upside.
On positioning, Barclays noted that U.S. equity exposure is likely to rise in flat or upward-trending markets, adding that “Vol Control and Risk Parity allocations have room to expand” while both hedge funds and long-only investors still have scope to increase participation.