Chinese chip stocks jump as Beijing reportedly warns against Nvidia’s H20
Investing.com - U.S. equities may move higher despite ongoing uncertainty around President Donald Trump’s tariff agenda and its impact on the wider economy, according to analysts at Barclays (LON:BARC).
In a note to clients, the analysts led by Emmanuel Cau argued that equities "may well continue to climb the wall of worry until something breaks", adding that the ongoing 90-day pause to most of Trump’s elevated tariffs still leaves time for individual trade deals to be reached.
The benchmark S&P 500 closed down by 0.8% on Tuesday at 5,606.91, but has broadly recovered some ground following the initial announcement of Trump’s punishing levies on both friends and adversaries alike during his so-called "Liberation Day" event in early April.
Trump has since partially postponed the tariffs in the wake of deep ructions in stock and bond markets, giving White House officials time to forge trade agreements with a host of individual countries. Crucially, U.S. and Chinese representatives are due to meet in Switzerland this weekend, potentially marking the first step in a cooling in heated trade tensions between the world’s two largest economies.
U.S. stock futures pointed higher on Wednesday, partially on hopes that the talks will prove to be productive.
Still, the full implications of Trump’s tariffs remain to be seen. Despite the delay, some levies are still in effect, including universal 10% tariffs and duties on items like steel, aluminum and autos.
Recent data have painted a relatively muddled picture of the U.S. economy. Gross domestic product contracted in the first quarter and inflation expectations have increased, although consumer spending and the broader labor market have shown indications of resilience.
Federal Reserve officials are due to present their latest interest rate decision on Wednesday, with the central bank widely tipped to leave borrowing costs unchanged. Analysts have said the focus will likely center around any clues the Fed may give about future possible rate changes.
First-quarter corporate earnings, meanwhile, have been relatively upbeat, but forecasts for the current quarter have slipped as some businesses flag that Trump’s tariffs are making it difficult to project upcoming results.
Oil prices have also been under pressure, with Goldman Sachs slashing its crude price forecast on Sunday following a decision by the Organization of the Petroleum Exporting Countries and its allies -- known as OPEC+ -- to accelerate output hikes.
"[W]e find it hard to justify much higher equity price/valuation levels than pre-Liberation Day: macro set-up is sub-optimal with a lot of damage done already but not reflected in hard data; lower short-term yields and falling oil prices are sending cautious growth signals but the Fed can’t do much for now; earnings revisions are deeply negative; erratic Trump policies are pushing up risk premia on U.S. assets; seasonality is turning unfavourable," the Barclays analysts said.
However, they noted that European stocks -- while not immune to global growth risks -- are seeing a "brighter" medium-term outlook. Stock valuations in the region are "undemanding" and strategic equity allocation to Europe is "low", they said, adding that a "rebalancing away from the U.S. may just be starting".
The analysts said they are "overweight" on the European telecoms and real estate sectors, as well as technology, defense, and insurance. They have added exposure to U.K. domestic stocks and are now overweight the FTSE 250 index, citing an anticipated ramp up in rate cuts by the Bank of England.