Hansen, Mueller Industries director, sells $105,710 in stock
Investing.com -- Underperforming stocks could catch up by year-end, Barclays strategists said, arguing that a resilient U.S. economy and the easing cycle create a favorable backdrop for equities.
While large-cap valuations remain historically elevated and market euphoria is high, the bank said laggards may now offer better upside value.
“A resilient economy and strong AI narrative should continue to support the bullish case for equities,” said Stefano Pascale, head of U.S. equity derivatives research at Barclays.
“However, after the strong rally among market leaders and given elevated euphoria/valuations, laggards may offer better upside value, amidst a benign macro environment & the ongoing easing cycle,” he added.
Pascale expects little lasting impact from the potential U.S. government shutdown, noting that past episodes were too short to materially dent growth or equity returns.
Jobs data remain lackluster, largely due to an immigrant supply shock, but the bank highlighted the “no-hire, no-fire” equilibrium in the labor market, which it said limits the risk of recession. Barclays forecasts headline payrolls to grow by around 50,000, in line with consensus.
S&P options are currently pricing in a smaller-than-usual reaction to the upcoming payrolls report, underscoring the subdued risk environment.
Against this backdrop, Barclays screened for stocks with cheap volatility, weak year-to-date performance, and early signs of a turnaround.
The strategists identified Prudential Financial, DaVita, and FedEx as their top long call candidates. These names, they said, combine lagging returns with improving momentum and liquid options markets, making them attractive for catch-up trades.
The bank also pointed to its Equity Euphoria Indicator, now at 12.4%, a level historically associated with weaker near-term S&P returns. This, combined with high valuations in leading stocks, supports a rotation into underperformers as the macro setting remains benign.
“In summary, the macro background remains benign into year-end. However, catch-up trades among underperforming stocks may be more attractive than simply owning the S&P upside,” Pascale said.