Resilient Indices and Artificial Intelligence Stock Surge Obscure Investor Caution: Barclays

Barclays analysts have warned investors that although the recent surge in AI stocks and resilient equity indices may be masking investor caution, the stock market is likely to muddle through as long as the US recession is avoided. Despite tighter credit conditions, the analysts say that the transmission mechanism is slow, while a tight labour market and lower energy prices are cushioning the consumer. Additionally, disinflation is gathering pace, and the bulk of rate hikes are done. The analysts suggest that investors hold residual exposure to Value and Cyclicals, while opportunities in small caps and China are worth exploring. They forecast only mild earnings and margins contraction in ’23. The analysts recommend international equity holdings versus US, as well as holding residual exposure to Value and Cyclicals, while finding opportunities in small caps (BCEUSIZE) and China exposure (BCEUCHIN) amid recent dislocation.