European Markets Rebound in November

European markets experienced a rebound in November following an initial selloff caused by the US elections. Despite this, overall factor performance, except for Momentum, remained quite subdued.

Barclays Strategy Update

Barclays (LON:BARC) strategists shifted their stance on the Momentum style, downgrading it from Positive to Neutral before the US elections. This change was influenced by expectations that a Trump victory coupled with a Republican sweep might lead to increased rates volatility. Following the elections, rates volatility and yields briefly rose but have since eased.

According to strategists led by Matthew Joyce, “This has led to a strong performance of Momentum style post-election, although it is starting to show cracks in the last few days.” However, they indicated that the year-over-year change in US yields has turned positive, historically impacting Momentum negatively. Consequently, they maintain a Neutral stance on this style.

Macroeconomic Indicators

Supportive government and monetary policies, alongside improving macroeconomic data, create an optimistic environment. An uptick in ISM this month, driven by strong internal measures like New Orders, Prices Paid, and Employment, suggests potential recovery in broader activity indicators.

Moreover, the rebound in the US labor market, following disruptions from weather and strikes last month, is viewed positively. Strategists believe, “Coupled with reflationary government policy in the US, and a continuation of the global rate cutting cycle, we think the set-up into next year looks positive, with the economic cycle likely to extend.” They express intentions to remain positioned for this outcome.

Historical Trends

Historically, the 12 months post-US elections usually see a transition from defensive to cyclical sectors and styles. Barclays strategists have been adapting to this trend, upgrading cyclical Value from Negative to Positive recently. They hold a Positive view on cyclical Small Caps while remaining Negative on defensive Low Volatility stocks.