Barclays strategists led by Emmanuel Cau say the equity bull market is "arguably running on tighter margins" as the end of the global easing cycle removes a key tailwind, though they still see a narrow path higher for European stocks into year-end. The team said growth remains strong, supported by nominal growth comfortably above nominal yields, loose fiscal policy and a capital spending cycle tied to AI, infrastructure and strategic autonomy, but warned that with "no more free lunch," the restart in tightening should bring lower future equity returns and softer growth down the road. Higher bond yields are challenging the argument that there is no alternative to equities, with rates now at a level where buying stocks "is no longer a no-brainer" and cash more attractive as equity risk premiums decline. Earnings must do the heavy lifting, and Barclays expects 16% earnings growth in Europe this year and 10% in 2027, while third-quarter results should reassure investors with growth moderating from second-quarter highs but still at a double-digit pace. Barclays stays market-weight on Europe versus the U.S., preferring peripheral Europe and Germany over France, with Japan its key regional overweight, favoring capex beneficiaries and banks, adding selectively to lower-beta telecoms, and staying cautious on consumer, real estate and materials stocks.
Barclays PLCBarclays strategists' own market call warns of tighter margins and lower future equity returns as the easing cycle ends, but stays market-weight Europe with a narrow path higher.
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