Barclays has advised investors to reduce risk exposure and lower portfolio beta as September approaches, citing a confluence of seasonal, macroeconomic and geopolitical risks despite a constructive medium-term outlook for equities.
The bank’s strategists, led by Emmanuel Cau, highlighted historically weak equity seasonality in September, particularly in the lead-up to U.S. midterm elections, as a key catalyst for caution. Softening U.S. activity data and the fading momentum from second-quarter earnings further support a more defensive stance, they noted.
Barclays’ economists expect two additional Federal Reserve rate hikes in 2026, aligning with similar tightening paths projected for the European Central Bank and Bank of Japan. The unresolved geopolitical standoff between the U.S. and Iran has also kept energy prices elevated, with Cau describing oil prices as lingering in a "danger zone." Meanwhile, the maturing artificial intelligence trade has seen increasing divergence between top performers and laggards.
Despite these near-term headwinds, Barclays maintains a constructive medium-term view on equities, citing resilient global activity, an earnings upcycle with projected EPS growth near 20%, and valuations that favor stocks over bonds. The strategists emphasized that while risks are rising, the underlying pillars supporting the bull market remain intact.
In portfolio adjustments, Barclays reduced exposure to the construction materials sector to marketweight while increasing allocations to insurance. The bank retained a constructive stance on capital expenditure plays across industrials, technology and mining.
Cau noted that "less beta and more tactical hedges seem wise," adding that "a lot of hawkishness is priced in now, while resilient growth and earnings remain a key anchor to the bull market." He added that "big picture, however, we see these hiccups as manageable, as the key pillars supporting equities stay firmly in place."
