Investing.com Market Analysis

The recent rotation trade appears to be losing momentum despite significant market volatility, according to Barclays strategists in a Thursday note.

Following months of sharp factor rotations driven by macroeconomic events such as the Yen carry trade unwind and general risk reduction, strategists have noted that most factor returns have stabilized at levels observed two months ago.

Key Macroeconomic Developments

Barclays attributes this stabilization to several key macroeconomic developments, including:
– The Federal Reserve’s 50 basis point cut
– A coordinated stimulus from China
– Strong US labor market data

While incoming data, like PMIs, remains mixed, these positive developments have supported market stability. Strategists anticipate a global cutting cycle that may extend the economic cycle into 2025, although uncertainty surrounding the US elections persists.

> "Our view is that the global cutting cycle will stimulate and extend the economic cycle, providing a soft landing in 2025," strategists stated. "However, we have refrained from adding more cyclical exposure before the US election uncertainty has passed, allowing a few more months of incoming data to read."

Historically, post-US election cycles and bear steepening tend to benefit cyclical and cheaper styles such as Value and Small Caps, while defensive strategies like Low Volatility struggle.

Adjusted Factor Recommendations

Based on this analysis, Barclays has adjusted its factor recommendations:
– Closed its negative view on Value
– Shifted to a negative stance on Low Volatility

The report indicates that Value has seen recent improvement due to better economic data and stabilizing yields, making it an attractive option as uncertainty related to the US election subsides. Conversely, Low Volatility is projected to face challenges, as bear steepening and election resolution typically do not favor defensive factors.

Overall, Barclays’ adjustments reflect a subtle tilt towards cyclical factors, maintaining a positive outlook on Growth and Quality-Yield, while adopting a more cautious view on defensive strategies.