Barclays’s Cau upgrades quality European stocks, cuts value

Investing.com -- Barclays strategists upgraded Quality European stocks to Positive while lowering Value to Neutral amid increasing recession risks.

The move comes after global equity markets experienced declines in March and continued to face challenges into April, affected by tariff announcements and policy uncertainties.

“The 90-day pause on higher reciprocal tariffs was a welcome reprieve, but it by no means marked the end of the story,” strategists led by Emmanuel Cau said in a note.

“Erratic policy/governance likely cap the upside, as an edgy treasury market and weaker dollar undermine confidence,” they added.

Quality stocks lagged in March but began to outperform following the tariff announcement on ’Liberation Day. ’

The reassessment of credit risk, prompted by issues in the U.S. bond market, has led investors to place greater emphasis on corporate balance sheets. According to Cau, investors’ scrutiny of balance sheets makes Quality crucial for stock selection.

While upgrading quality stocks, Barclays downgraded Value stocks to Neutral from Positive. The revision reflects the strong year-to-date performance of Value, which may have led to crowded tactical positioning and heightened recession risk concerns.

For the long run, Barclays still sees a positive outlook for Value stocks.

Meanwhile, the investment bank maintains a positive stance on the Size factor and their Quality-Yield combination basket.

Low Volatility stocks have outperformed recently, but with persistent economic uncertainty, they remain neutral on the factor while seeing more upside for Quality.

Despite recent market turbulence, Size has performed well due to its domestic EU exposure and low crowding.

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Growth has lagged over the past month, with high-growth stocks still appearing expensive and widely held, though strategists view the recent underperformance as somewhat overdone.

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