Barclays Shifts Focus to U.S. Growth Stocks, Downgrades Value and Yield Strategies

Barclays has revised its outlook on U.S. equity markets, shifting its preference towards Growth stocks and away from Value and Yield strategies. In its latest U.S. Equity Factor Insights report for June 2025, the bank announced a positive stance on Growth, citing improving earnings momentum and favourable macroeconomic developments.

The report states that Barclays is now “positive on Growth” while turning “negative on Value and Yield”, marking a notable shift in its investment strategy amid evolving market conditions.

Growth Stocks Favoured Amid Economic Tailwinds

According to Barclays analysts, recent equity rotations and earnings surprises are creating a more supportive environment for Growth stocks. Softer-than-expected macroeconomic data has eased inflationary concerns, leading to a divergence in earnings revisions across the S&P 500 — particularly excluding the Technology sector. The resurgence of Big Tech as a major driver of market performance has also strengthened the case for Growth-oriented investments.

“Earnings momentum and broader equity dynamics are tilting in favour of Growth,” the report notes, “while traditional Value characteristics appear less compelling in the current economic landscape.”

Value Stocks Lose Appeal in a Shifting Market

Once prized for their defensive traits during periods of market volatility, Value stocks are now seen as less attractive. Barclays highlighted that the reduced relevance of tariff-related risks and a lower-beta environment have diminished the appeal of Value equities.

“Value’s lower beta is less beneficial in a market that has moved beyond peak tariff uncertainty,” the bank commented. Additionally, a weakening U.S. dollar is expected to boost Growth stocks, which typically have stronger exposure to international markets.

Yield Strategies and Momentum: Mixed Views

Barclays also downgraded Yield strategies, suggesting they are “ill-suited for a broadening economic cycle” and may underperform due to limited margin expansion opportunities. While Yield-focused investments offer some downside protection, the bank believes they are poorly positioned for the next phase of growth.

In contrast, Momentum was upgraded to Neutral. However, analysts expressed caution due to high correlations with market volatility and concerns over valuation, which they described as “slightly stretched.”

Preference for Large Caps Over Small Caps Remains

The bank reiterated its preference for Large Cap stocks over Small Caps, highlighting stronger earnings growth, higher quality, and reduced refinancing risk as key factors. Barclays noted that Large Caps have been its top-performing factor so far in 2025, delivering a year-to-date return of +15%.

“We continue to favour Large Caps due to their superior earnings profile and lower financial leverage,” the report stated.

Final Thoughts: Neutral on Quality, Negative on Volatility

Despite an improvement in cyclical sentiment, Barclays maintains a Neutral stance on the Quality factor and remains Negative on high Volatility. Valuation concerns and the risk of performance reversals continue to weigh on these categories.

This updated outlook signals a significant reallocation of investment preferences, with Growth stocks now positioned as the top pick for investors navigating the mid-2025 U.S. equity landscape.

(Sources: investing.com, reuters.com, ChatGPT)