Barclays highlights shifting leadership across U.S. and European equities

Investing.com -- Barclays analyst Venu Krishna stated in a note Wednesday that he believes the recent market rotation has exposed “fragility in the risk-on mood,” prompting a series of changes to its factor views across U.S. and European equities.

In its latest Equity Factor Insights report, Barclays said Value and Yield are leading the rotation, while Momentum is fading and defensives are re-engaging in Europe.

In the United States, Barclays stated that it remains Positive on Growth, citing “still-solid fundamentals, rising earnings expectations in Big Tech, and durable AI-linked demand,” even as rotation has added volatility.

Krishna upgraded the bank’s U.S. Value view to Neutral from Negative, noting that the factor “continues to benefit from recurring AI-related rotation episodes and a more supportive inflation backdrop,” though it added that much of the year-to-date performance reflects “multiple expansion rather than earnings.”

Barclays also turned more constructive on size dynamics, saying it now holds a Positive view on the large-over-small-cap pair because “small-cap earnings expectations have deteriorated, valuations have re-rated, and Big Tech remains fundamentally stronger and more resilient.”

The bank downgraded Momentum to Neutral, pointing to “stretched valuations, weak relative EPS momentum, rising dispersion, and fading AI-narrative support.” Barclays remains Neutral on Quality in both regions, saying the style “still lacks catalysts.”

Barclays is Negative on U.S. High-over-Low Volatility, citing “deteriorating fundamentals” and “rising sensitivity to sentiment shifts.” It also remains Negative on U.S. Yield, saying declining front-end rate expectations and high small-cap exposure create headwinds.

In Europe, Krishna believes that leadership is shifting as Value “holds,” Momentum fades and stretched positioning raises reversal risks.

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