Barclays expects stocks to keep climbing the wall of worry in 2026

Investing.com -- Barclays remains upbeat on global and European equities heading into 2026, arguing that markets can “keep climbing the wall of worry” despite lingering uncertainty over Federal Reserve and Bank of Japan rate decisions.

In a note on Wednesday, analyst Emmanuel Cau said the bank continues to see “a positive set-up for equities into 2026,” with fundamentals “beyond AI” still supportive.

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Barclays notes that stocks rose “c20% in 2025,” raising the hurdle for upside surprises, but the firm argues that the “AI supercycle is maturing … but still has legs.”

While AI has contributed to “much polarisation within the equity market,” the bank maintains that “the growth impetus from AI-related capex will stay positive.”

Macro policy is expected to remain a critical tailwind. Cau writes that “monetary & fiscal easing should lift US/EU GDP growth above trend,” supported by an expected “three more cuts by the Fed” and the end of quantitative tightening.

Still, the bank warns that shifting expectations for the terminal rate “may fuel volatility,” with “bond vigilantes on alert in UK and Japan.”

Earnings are set to do the heavy lifting next year, according to Barclays, which forecasts European EPS growth of 8% in 2026, helped by “operating leverage, easy comps and fading FX headwinds.”

The analyst adds that valuations leave limited room for further P/E expansion, though balance sheets remain strong.

The bank sees European equities particularly well placed to benefit from “reflationary tailwinds,” citing cheaper valuations and lower crowding.

With an SXXP target of 620, implying 9% upside, Barclays says that if the AI boom “doesn’t end in tears” and lagging sectors catch up, equities should again outperform bonds in 2026, even if “the path ahead is narrow and tail risks are high.”