Strategists at Barclays downgraded Value stocks to Negative on Thursday while reiterating a positive outlook on the Momentum factor.
The bank notes that Growth outperformed Value in both the US and Europe, albeit for slightly different reasons. In the US, Growth was buoyed by strong earnings momentum, while Value stocks declined due to early signs of a cooling economy. In Europe, Value's underperformance was attributed to risks associated with the French elections and weaker macroeconomic data.
“We downgrade Value to Negative in both regions on softer data and rising rate expectations, while maintaining our existing views on Growth (Positive in US, Neutral in Europe),” strategists said in a note.
Meanwhile, Momentum is the top performing factor across both regions, Barclays highlighted, while registering a record first half in the US.
“Falling rates volatility and low stock volatility should help to underpin style returns going forward,” strategists continued.
They also remain positive on large-cap stocks in the US, favoring them over small caps due to their exposure to Quality and Sales/EPS Growth styles, and lower leverage and refinance risk. In Europe, they prefer small caps given their multi-decade low valuations and expectations of imminent rate cuts.
In contrast, strategists hold a negative view on high-volatility stocks in the US due to poor Quality exposure and relative expense. In Europe, their view on high-volatility stocks has been updated to Neutral, aligning with a neutral stance on cyclical versus defensive sectors.