Barclays strategists believe that equities are likely to remain sensitive to disruptions in the rates market, even if the third-quarter reporting season demonstrates robust corporate earnings.
Barclays maintains an overweight position on value stocks because they believe that the valuations of long-duration stocks have not fully adjusted to the new environment of higher rates persisting for an extended period.
While better-than-expected earnings in the third quarter could contribute to stabilizing markets that have been oversold, the strategists also note that sentiment has recently turned negative.
They point out that year-end seasonality tends to be positive for markets. However, the strategists caution that if the bond market experiences further disruptions or becomes "disorderly," equities are unlikely to be insulated from the impact.
The strategists accurately predicted a bounce in equities in October 2022 based on defensive positioning and bearish sentiment.