Global equities entered September on a weaker footing after a strong summer, but strategists still see opportunities for investors willing to look past seasonal risks.
Citing a supportive backdrop, Barclays strategists note that while positioning is higher, “ample dry powder remains on the sidelines” and the restart of the Federal Reserve’s cutting cycle “looks close if not imminent.”
Global growth is holding up better than expected, with tariff uncertainty having peaked and purchasing manager indexes nudging higher. Money supply is improving and earnings expectations are rebounding across regions after being negative in the first half of the year, the strategists said.
Moreover, structural tailwinds from artificial intelligence continue to drive momentum in big technology stocks.
Risks remain in the picture, though. Barclays flagged concerns around Fed independence, developed market fiscal positions, and renewed political noise in Europe, especially in France.
Elevated valuations and historically weak September seasonality also leave little cushion if negative headlines emerge. Still, “as long as the Goldilockish growth-policy backdrop remains, we recommend to keep buying dips, looking for modestly higher year-end highs,” the strategists wrote.
The U.S. market remains strong, supported by stronger earnings momentum and expected Fed rate cuts.
Europe, by contrast, has been held back by “French political noise and German fatigue post strong run,” though Barclays argued that cyclical and export laggards now have catch-up potential.
Its year-end 2025 target for the STOXX 600 is 570, implying modest gains from current levels. Sector-wise, the bank is overweight European financials, industrials, IT, and communication services, while underweight energy, staples, utilities, and real estate.
On earnings, Barclays said weaker GDP growth means lower EPS growth in 2025, with consensus trending down to 0% in line with its forecasts. But for 2026 the gap remains wide — 8% growth vs. 12% consensus.
“EPS revisions are on the rise again” after second-quarter results cleared a low bar, with FX headwinds heavy but tariff impact manageable, the team noted.
Valuations are also expected to move back above average as tariff-related uncertainty settles, potentially by year-end.
China is another bright spot. “China equities [are] in the lead, boosted by Tech,” Barclays said, pointing to MSCI China at fresh year-to-date highs. H-shares have driven most of the gains, while A-shares are catching up.
Incremental stimulus should “put a floor to growth,” even if structural challenges such as high household debt and property weakness persist. The strategists also cautioned that the “China AI boom is a threat to U.S. Big Tech dominance.”
Beyond Europe, Barclays said diversification into the rest of the world has merits. Political uncertainty may weigh on European sentiment, but improving PMIs, firmer consumer spending, recovering capital expenditure indicators, and a rebound in EPS revisions provide support for equities overall.
With disinflation proving slow and uneven, the strategists added that rate cuts are “largely priced in already,” reinforcing its view that volatility should be used as an opportunity to add exposure.
Overall, Barclays maintains a neutral stance on Europe versus the U.S., favors the FTSE 100 over the FTSE 250 in the U.K., and stays overweight emerging markets (EM) and China despite their recent strong run.
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